Commodity producers had 'a year to forget' in 2015

Employee Darryn Anderson labels a rack of camembert at Fonterra Cooperative Group's Te Roto cheese factory in Paraparaumu. Photo / Bloomberg
Employee Darryn Anderson labels a rack of camembert at Fonterra Cooperative Group's Te Roto cheese factory in Paraparaumu. Photo / Bloomberg

Commodity producers had "a year to forget" in 2015, with many products falling below the cost of production although there are signs things might start picking up, according to ANZ Bank New Zealand, the country's largest rural lender.

The ANZ Commodity Price Index dropped 13 percent to 238.0 in 2015, following a 17 percent fall in 2014. A fall in the kiwi dollar limited the 2015 annual decline of the NZD Index to 1.1 percent.

Aggressive, broad-based declines in commodity prices since early 2014 have meant many producers are now losing money or are only marginally profitable, ANZ says.

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Markets have been hit by softer import demand from key emerging demands, particularly China; a decline in oil prices which has weighed on sentiment and hurt the purchasing power of key buyers; geopolitical ructions disrupting trade flows, such as sanctions in Russia; policy changes such as the lifting of European import quotas; good seasonal conditions and lower feed costs bolstering exports of competing countries; and foreign exchange movements impacting competitiveness.

"Some of the main New Zealand sectors had quite a challenging year, particularly the likes of dairy but even sheepmeat and forestry during various points saw prices dip quite dramatically which impacted on their revenue lines," said ANZ rural economist Con Williams.

It's been pretty much one-way traffic. Prices have got lower and now they have got to that point where they're kind of either below the profit line or only marginally profitable for a lot of sectors.

Still, he said the bottom of the market appears near, and it seems unlikely there will be another sustained leg lower in 2016.

"Certainly we're a little bit concerned that there might be some more downside in early 2016 but if you look at the fundamentals of the main sectors or markets, it feels like it is going to be difficult to go too much lower in 2016.

"We are really looking to the supply side where we are picking up a number of anecdotes across a range of sectors where we are seeing some changes in behaviour which we think will lead to basing in pricing and perhaps some improvement as we progress through the year as inventory levels run down," he said.

"For a more sustained uptick we really do need to see the demand side come back, i.e. China starting to buy a bit more and that feels like it might be a little bit more distant in the future at present."

Demand may not pick up until late 2016, or into 2017, he said.

- BusinessDesk

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