Tighter global supplies push dairy prices higher

In local currency terms dairy prices are up 4.9 per cent year-on-year. Photo / 123RF

New Zealand commodity prices rose in February, continuing an upward shift that started in January, ANZ Bank's monthly commodity price index shows.

The world commodity price index rose 2.8 per cent last month but was down 2.2 per cent from a year earlier. In local currency terms, the index rose 1.8 per cent on the month and 3.2 per cent on the year.

Dairy prices pushed higher on the back of tighter global supplies and steady demand. In annual terms, prices still trail last year by 2.0 per cent, but in local currency terms dairy prices are up 4.9 per cent year-on-year. This is positive for farmgate returns and is reflected in Fonterra's recent upwards revision of its 2018-19 milk price forecast, ANZ agriculture economist Susan Kilsby said.

"The upward trend in dairy commodity prices is expected to be maintained in the short term," she said.

The meat and fibre index lifted 0.7 per cent on the month in February, continuing the recent upward trend. Returns for lamb meat softened slightly in both international and local currency terms, but this was more than offset by higher returns for beef.

The horticulture index was stable on low seasonal volumes. Kiwifruit returns are expected to benefit from the ongoing trend towards the higher-returning Sungold variety, said Kilsby.

She noted the growth in planting of Sungold is occurring primarily on greenfield sites, but there is some grafting of gold onto existing green vines. This will curb production of green kiwifruit, which is expected to be supportive to prices.

International forestry prices lifted 0.5 per cent on the month in February, but eased 0.7 per cent in local currency terms due to the appreciation in the New Zealand dollar.

So far, prices are holding at elevated levels, but are very reliant on ongoing demand from China, she said.

"Risks of a fall in demand from China are heightened due to uncertainty surrounding economic growth, but thus far this has not played out into any decrease in demand for logs sourced from New Zealand."

Aluminium prices lifted 0.8 per cent in February, stemming the downward trend in pricing that has been evident since May.