NZ commodity prices rise in March on dairy, meat and forestry gains

Dairy prices rose 3 per cent in March on a resumption of Chinese demand.

New Zealand commodity prices rose for a third month in March as tight supply bolstered prices for dairy and meat products and Chinese demand continued to underpin forestry. Aluminium prices fell as the US imposed tariffs, stoking trade tensions with China.

The ANZ commodity price index increased 1.2 per cent in March and is up 5.8 per cent from a year earlier as the country's dominant raw material exports were supported by supply concerns and strong Chinese demand. In New Zealand dollar terms, the index gained 2 per cent in March for an annual increase of 5 per cent.

"There was broadbased support driven by dairy, meat and fibre, and forestry," ANZ Bank New Zealand agri economist Con Williams said in a note. "The laggard was aluminium, which has been caught up in the US-China trade tensions alongside increasing inventory levels."

New Zealand's terms of trade reached a new high in the December quarter as meat export values and volumes were boosted by record lamb sales, adding to the last year's recovery in global dairy prices.

At the time, ASB Bank economists anticipated the terms of trade will stay strong this year as improving global growth stokes demand for local products.

Since then, trade tensions between the US and China have been escalating with the world's two biggest economies imposing tit-for-tat tariffs.

That included new US tariffs on steel and aluminium imports, with Chinese production of those metals attracting accusations of undercutting rivals and dumping goods in foreign markets for several years.

The ANZ report shows aluminium prices fell 5.1 per cent in March, and Wiliams said there's more uncertainty "given China's clampdown on excess production and capacity restrictions to improve air quality".

Dairy prices rose 3 per cent in March as a resumption of Chinese demand after the Lunar New Year coincided with supply concerns. Whole milk powder prices rose 4.4 per cent and butter was up 5.5 per cent, while skim milk powder dropped 3.8 per cent.

Meat and fibre prices increased 0.3 per cent as beef markets were bolstered by tight Australasian supply, while Chinese demand drove a recovery in wool prices from recent lows, rising 0.6 per cent.

Forestry prices edged up 0.3 per cent, their 18th straight gain as domestic and Chinese demand for wood products persists. Seafood and horticulture prices were largely unchanged.