Stronger dairy prices boost commodity index

Global milk production is down, in turn pushing up world prices. Photo / Stephen Jaquiery

Strengthening dairy global prices have underpinned a gain of almost 20% in the overall ANZ commodity price index.

Much of the dairy gain is attributed to a decline in global production. Fonterra's milk collection this season continued to track below the previous year, largely due to lower North Island production, after a wet spring in the Waikato.

Countrywide, milk collections in the seven months from June to December were down 5.5%. The North Island was down 7%, while South Island collection fell just 2%.

The commodity index rose 0.7% month on month in December, due to the continuing comeback story of dairy prices during the second half of 2016.

The December rise was the eighth consecutive gain, driving it 19% higher during 2016.

ANZ agri economist Con Williams said the lift in December was the fourth monthly gain above 2%.

"The New Zealand dollar's continued descent against the US dollar and British pound in December was the key helping hand," he said.

However, Mr Williams said non-dairy commodity prices were a disappointment, falling 1.9% month-on-month.

Only three of the 12 non-dairy commodities in the index rose in December. Falls were mainly in the meat and fibre groups.

Many sectors had price improvement throughout 2016 and total non-dairy was up 7% year on year, but movement in the kiwi continued to weigh on returns in many cases, he said.

Dairy prices rose for the seventh consecutive time, up another 3.9% month-on-month in December.

Tight global milk supplies and improved Chinese import demand were the main drivers, Mr Williams said.

All dairy-based products improved in December, led by butter, up 6.2%, followed by whole milk power up 4.8%, cheese prices up 3.1% and skim milk and casein up 0.5%.

"The resurgence in these products now has prices up over 44% on last December."

The largest decline was a 6.2% drop in wool prices in what has been a tough 2016/17 season so far; down 26% on a year ago.

"The main reason has been a lack of interest from China, which accounted for 50% of exports in 2015-16."

Beef prices also fell 5.5% in December as higher US supply weighed on import prices.

Lamb prices also fell 2.4% month-on-month in the first fall of 2016.

Forestry prices posted a 0.6% month-on-month gain and log prices continued to find support from China and local construction activity.

Seafood was up 0.2%, finishing the year 13% higher.

Aluminium prices fell 0.6%, after two gains of more than 4% in previous months.

Horticulture finished the year 8% higher.