‘Ballistic’ dairy prices aid export price climb

Export commodity prices recorded their third strongest monthly jump in 27 years last month, charging up more than 7 per cent, as dairy product prices raced ahead.

Commodity prices have risen for eight months in a row.

Drought and strong demand from China are helping to push up dairy product prices.

The ANZ Commodity Price Index is just 6 per cent below its all-time high, which it hit in April last year.

The index rose 7.4 per cent last month, driven by higher prices for wholemilk powder, up 23 per cent, and animal pelts, up 16 per cent.

Because of a small drop in the currency last month, the New Zealand dollar price index for commodities rose 8.7 per cent in the month.

‘‘It’s all related to what’s happening with the drought,’’ ANZ economist Steve Edwards said, after an explosion in dairy product prices in the last two Fonterra auctions.

If the index did go up again ‘‘it can’t sustain these sorts of [monthly] increases’’.

With the index just 6 per cent off its highs, it would take only another 7 per cent rise to hit a new record high.

‘‘But I can’t see that happening,’’ Edwards said, despite dairy prices going ‘‘ballistic’’ recently.

It is not just about dairy, which makes up about 40 per cent of the ANZ index.

Wool prices rose 3 per cent and logs were up 2 per cent, also driven by demand from China.

The drought is squeezing supplies of dairy products, while Chinese demand for food, especially dairy products, is strong.

China is a key export market for milk powder, buying almost $2.2 billion worth in the past year, up more than $450 million. China is also buying more logs, sheep meat and lobster from New Zealand.

Dairy prices in the ANZ index are up 31 per cent since the middle of last year, but that was short of the 77 per cent lift in prices in Fonterra’s GlobalDairy Trade auction, suggesting there was some catchup to come, a Westpac economist said.

The latest online dairy auction result is due out this morning, though Bank of New Zealand doubted prices would go much higher.

Westpac economist Nathan Penny expected further price gains in world terms in the first half of this year, as drought affected supply, but that would be tempered by a high New Zealand dollar.

Westpac recently estimated the total hit to the economy from the recent drought would slice about 0.6 per cent off the economy. But latest figures from Fonterra suggested a smaller hit. It estimates full season production would be unchanged from last season. Production was 6 per cent ahead until January when drought started to bite.

Meanwhile, aluminium prices fell 7 per cent and lamb was down 1 per cent last month.