Record highs for export price index

ANZ's export commodity price index hit all-time highs in both world price and New Zealand dollar terms last month.

In contrast to recent weakness in "hard" commodities, the index rose 2.5 per cent, which became an increase of 2.9 per cent when translated into New Zealand dollars, in light of the kiwi's depreciation at least against the US dollar and Japanese yen. In New Zealand dollar terms export prices have climbed 30 per cent in the past year.

The improvement last month was broad-based with rises in eight of the 13 commodities tracked by the index.

Dairy products, which make up 38 per cent of the trade-weighted index rose 4 per cent to be 64 per cent up on a year ago.

Lamb, which has the second highest weighting in the index, with 15 per cent, was up 3 per cent to a record high in the 24-year history of the ANZ index, though beef prices fell by 3 per cent.

ANZ economist Mark Smith said sheepmeat prices had risen steadily over the past three years, reflecting a tightening in the global supply.

Low returns for meat and wool in Australia and New Zealand over the past 15 years had encouraged farmers to switch to cereals, dairying or dairy support, he said.

Drought in both countries in recent years had reduced sheep numbers further, while the partial removal of European subsidies had had a similar effect in Britain and Ireland.

Aluminium prices fell 11 per cent last month though they are still 55 per cent above the recessionary lows reached early last year.

Forest products were a mixed bag, with pulp prices up 6 per cent and logs up 1 per cent while sawn timber fell 2 per cent. Overall, the forestry sub-index is close to the all-time high reached in August 2007.

But while export prices have enjoyed a broad-based rally, the picture for volumes is more mixed.

NZIER's June Quarterly Predictions pointed out that while volumes of dairy and forest products shipped had risen strongly from the recessionary lows of 2008, buoyed by Chinese demand, other goods had not fared as well. New Zealand in March recorded its first annual trade surplus for eight years.

"The trade accounts have been helped by an improving trade balance in volume terms and an improving terms of trade - rising export prices relative to import prices," NZIER principal economist Shamubeel Eaqub said.

But while he expects this trend to persist he said that exports were recovering only slowly, with much of the growth in dairy and forestry, and more recently manufacturing.