Commodities up as wool sector slips

For the past year, New Zealand's wool exports to China were down 37%. Photo / Duncan Brown

Agricultural commodity prices overall have made a strong 25% year-on-year gain, even as the wool sector has its worst year since the 2007-08 global financial crisis.

ANZ agri economist Con Williams said a continued surge in milkfat and sheepmeat prices led the charge, but there were declines for wool, wholemilk powder, casein, apples and aluminium.

For the past year, New Zealand's wool exports to China were down 37%, with subsequently larger-than-normal stockpiles of bales held by farmers around the country.

New Zealand is the world's largest exporter of strong (crossbred) wool.

A total 420,378 bales, across all wool grades, were offered at auction in the season which ended on June 30, as 311,698 sold, giving an average clearance rate of 74%, according to AgriHQ.

Confirmation of the worst season comes as China, the largest wool buyer, switched its preference to fine wool and away from strong wool, which makes up the majority of this country's clip.

Mr Williams said while the rest of New Zealand's wool buying market was ''stable'', and up 1.3% for the year, multiple issues were causing the decline in Chinese buying trends.

''There's huge stockpiles of raw and semi-processed wool (in China) which needs to work its way through the supply chain. It's going to be difficult to lift,'' he said.

Wool sector veteran of 39 years, John Dawson, is chief executive at New Zealand Wool Services International, the nation's largest wool exporter.

''We haven't seen a market like this since the global financial crisis.

''The speed of it took the whole industry by surprise. It's been one of those seasons that you want to forget,'' he told BusinessDesk.

Mr Williams said aside from China's stockpiles, there was less end-user demand for Chinese goods in Europe and the UK, a weakening in Chinese currency, wool was being sourced from other countries, and Chinese fashion trends had been changing during the past two years.

''Any lift could potentially be as much as a year away,'' Mr Williams said.

Demand for fine wool for clothing resulted in the price for 18-micron merino hitting $18.60 a kilogram, and the price for 21-micron merino reaching $15.60, the highest level for both grades since February 2012, BusinessDesk reported.

However, the picture was less rosy for coarser crossbred wool typically used for carpets, as 35-micron fibre closed down 44% to $3.30 a kg, the lowest level since January 2010, while 39-micron was also down 44%, to $3.25 a kg, the lowest since May 2010.

In addition 37-micron second-shear wool slumped 50% to $2.90 a kg, its lowest since October 2009, AgriHQ said.

On the other commodities, Mr Williams said overall dairy prices had nudged up 2.9% in June, or more than 49% year-on-year, led by butter up 12%, cheese 8% and skim milk powder 5%.

The non-dairy commodity prices increased 1.7%, or more than 10% on the year.

''The New Zealand dollar index slipped 1.6% month-on-month, due to its strengthening, but this needs to be kept in perspective with local returns up 20% year-on-year,'' he said.

Meat prices continued their strong performance, up 2.8% for the month, and lamb prices rose 4.7%, as tight Australasian supply spurred further intermarket competition across all major markets and cuts.

Beef prices rose 1.7% for the month as tight domestic supplies and higher seasonal demand pushed prices higher again, Mr Williams said.

''Strength in commodity prices bodes well for the economy and rural regions,'' Mr Williams said.

Seafood prices increased 2.4% for the month, horticulture prices maintained their momentum in June, up 1.4%, after surging in May

The forestry group increased 0.4% for the month driven by a further rise in log prices.

''Log prices continue to be supported by Chinese demand with port-level inventory and offtake continuing to track favourably,'' Mr Williams said.