Commodity prices plunge - led by dairy

New Zealand commodity prices had their biggest decline since the height of the global financial crisis in 2008, led by falling dairy product prices.

The ANZ Commodity Price Index fell 7.4 per cent in April, the biggest decline since October 2008, when it fell by the same amount. The latest decline has reversed most of the gains seen since the start of the year, with prices 15 per cent lower than a year ago.

Dairy product prices led declines, down 15 per cent to be a third lower than a year ago, on weaker milk powder and butter prices. Fonterra Cooperative Group, the world's biggest dairy exporter, last week cut its forecast payout to farmers for the current season to $4.50 per kilogram of milk solids from $4.70/kgMS, blaming volatile global commodity prices and an over-supply in international markets.

"The Fonterra downgrade to the 2014/15 milk price payout and continued weakness in dairy prices raise the prospect of a mild 2015/16 opening milk price forecast and low opening advance payments at the end of May, which will bring cash-flow stresses to the sector," said ANZ Bank New Zealand agricultural economist Con Williams.

Still, prices in most other major sectors were steady or improved in April, ANZ said.

Meat prices rose 2.3 per cent in April, led by a 5.9 per cent gain in beef prices on US demand. Stronger buying from China contributed to increases for wool and pelt prices, while lamb prices eased fractionally.

Horticulture prices increased 2 per cent, underpinned by a 6 per cent rise in apple prices. Prices for aluminium rose 1.5 per cent.

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Meanwhile, forestry prices were little changed, although prices in the first four months of the year are about 9 per cent behind the same period last year. The majority of the decline has centred on logs and wood pulp with a reduction in end demand in China and increased competition from Russian supplies. Seafood prices fell 0.9 per cent.

Declining commodity prices are likely to weaken trade, weighing on economic activity and the New Zealand dollar, ANZ said.

The NZD Index fell 8.9 per cent, to be 6.8 per cent than from a year earlier.

See recent movements in the GDT dairy auctions here: