High dollar eats into commodity gains

Dairy prices are relatively high but down from the spike of the past three years. Photo / Mark Mitchell

Commodity prices have lifted for the sixth consecutive month but the gains were gobbled up by the strong New Zealand dollar.

The ANZ Commodity Price Index, which measures a basket of products in the most relevant currency, rose 4.3 per cent in August - its strongest gain since a recent low in February.

ANZ economist Steve Edwards said the index had come back 12 per cent from the low point at the beginning of the year, confirmation of a pick-up in the global economy.

But Edwards said price gains in commodities such as aluminium had more to do with a build-up of inventories which had been run down as the recession bit rather than evidence of growing demand.

"Aluminium had a six-year low earlier in the year and it's bounced back pretty much to its long-run average," said Edwards.

The big lifts in the average price of milk powder - up 24 per cent on the previous month - at Fonterra's latest online auction are not reflected in the dairy component of the ANZ index which gained 5 per cent.

Edwards said dairy prices measured - milk powder, cheese, butter and casein - were at relatively high levels if the "blip" of the past three years of record prices was excluded.

Any gains from the price rises have been wiped by the strong New Zealand dollar - currently trading at around US67c against the greenback - with the NZD Commodity Price Index recording a small decline of 0.7 per cent.

Edwards points to the dollar sliding off a high for the year of US68c as a glimmer of hope for exporters.

"If that trend does prevail we will see a better return in New Zealand dollar terms to our exporters," he said.

"At the moment [the index has] been roughly where it's been for the last two or three months because the currency has gone up just as much as the commodity prices have gone up."

Bloomberg consensus forecasts don't predict the dollar to fall below US68c for the foreseeable future.

Price decays were noted for fruit, said Edwards, as kiwifruit and apples sent to the Northern Hemisphere no longer commanded the premium prices expected earlier in the season.

Kiwifruit prices were down 3 per cent and apples eased 1 per cent which Edwards said was typical for this time of the year.

GOING UP

Aluminium +15 per cent
Pelts +15 per cent
Lumber +8 per cent
Wool +7 per cent
Dairy +5 per cent
Logs +4 per cent
Seafood +1 per cent

GOING DOWN

Kiwifruit - 3 per cent
Apples - 1 per cent
Beef - 0.3 per cent
Lamb - 0.5 per cent