KEY POINTS:
Sky-rocketing dairy prices have pushed a key gauge of New Zealand commodity export prices to an all-time high.
The ANZ World Commodity Price Index rose 2 per cent last month, is 17 per cent higher than a year ago and 9.6 per cent above the previous peak in
May 2005.
Dairy prices are up 40 per cent from a year ago and are at a record high since the index began in 1986.
The price of milk powder was now more than US$3000 a tonne compared with its long-term average of just over US$2000 a tonne, the ANZ said.
Factors for the rise included an overhang from the Australian drought, solid growth in demand, restricted global supply and a change in product mix out of the EU, chief economist Cameron Bagrie said.
But even if dairying picked up in Australia, the outlook for dairy prices was still looking good.
"If you look at the big picture, our international dairy supply is growing at probably 1.5 per cent a year and demand is outstripping that.
"It suggests ... dairy prices are going to remain at an elevated level."
Bagrie said the index had risen for a ninth consecutive month.
The resulting income boost "will be a major positive influence on economic prospects over the coming years".
However, the flipside was probably high interest rates and a strong New Zealand dollar for some time.
Other price increases were logged in pelts and skins (up 16 per cent), sawn timber (up 9.2 per cent), and logs (up 1 per cent).
Falls were recorded in prices for beef, wool and seafood, which all fell between 2.25 and 3 per cent.
A recent Rabobank rural confidence survey showed sheep and beef farmers becoming increasingly pessimistic about their outlooks.
Fifty-seven per cent of sheep farmers expected economic decline over the next 12 months, and 40 per cent of beef farmers were pessimistic.
That compared with only 7 per cent of dairy farmers, whose confidence has been boosted by Fonterra's recent decision to lift the payout for milk solids by 10c/kg.
Bagrie said beef and wool were at the bottom of a cycle but he added that the medium-term outlook for "soft" or primary products out of New Zealand was bullish over the next 10 to 15 years.
Prices for the index's export basket - the "New Zealand dollar index" - rose 1.5 per cent in March when converted into local currency.
- NZPA