Rising dollar outweighs gains

By BRIAN FALLOW

World prices for New Zealand's export commodities continued to improve last month, but the rising exchange rate swallowed all the gains and then some.

Dairy prices, which represent about a third of ANZ Bank's world commodity price index, improved 5.6 per cent in November, the fourth consecutive monthly rise.

Beef, lamb and aluminium prices also improved, offsetting falls in wool, skins, venison and seafood, to yield a 1.5 per cent rise in the index.

But the 3.3 per cent rise in the New Zealand dollar against the United States dollar meant that in local currency terms the basket of commodities was 1.3 per cent cheaper.

While the world price index is back where it was a year ago, in New Zealand dollar terms prices have fallen 13.9 per cent over the year.

ANZ chief economist David Drage said a gradual recovery in the world economy still appeared likely and should be a positive influence on commodity prices, particularly with the tone of dairy markets improving.

Offsetting that would be further gains expected in the exchange rate, to the mid-50s against the US dollar over the next 12 months.

The European dairy market appeared to be in reasonable balance as the Northern Hemisphere moved into winter, the seasonal low-point for production, Drage said.

Exports of skimmed milk powder from the United States continued, but the mountain of US skimmed milk powder stocks overhanging the market had gone. The US Department of Agriculture had marked the last of its stocks, 200,000 tonnes, for food aid.

Lamb prices rose 1.7 per cent in November, the fourth monthly increase in a row.

"Steady demand and low production in both Europe and the US have contributed to a balance in lamb markets which is expected to hold through to the main seasonal peak at Easter."