Commodity price index falls for fifth straight month

Photo / APN

ANZ's commodity price index fell 2.4 per cent last month, led by a decline in dairy products and logs which make up more than half the trade-weighted basket.

It was its fifth successive monthly drop and left the index 9 per cent below its peak in February.

When converted into New Zealand dollars the decline was 3.5 per cent last month to a level 16 per cent off its high in March 2011 and 12 per cent down on a year ago.

Whole milk powder fell 12 per cent from June and is down 53 per cent on July last year.

"This [was] primarily caused by an overhang of inventory in China and a good production year for New Zealand in 2013/14," said ANZ rural economist Con Williams.

Skim milk powder prices fell 2.9 per cent last month, ANZ said. China accounted for 46 per cent of New Zealand's milk powder exports in the year ended June. Butter markets are more widely dispersed but even so butter prices fell 6.8 per cent, and cheese 2.9 per cent.

Fonterra is forecasting a milk price of $6 a kilogram of milksolids in 2014/15, down from $8.40 in 2013/14.

"Analysts estimate this will reduce farm incomes by around $3.5 billion over the next year, or around 1.5 per cent of GDP," the Treasury said yesterday in its monthly summary of recent economic indicators, adding that "data on milk production and meat processing point to weaker activity, as do anecdotes from the logging industry".

Export log prices fell 2.7 per cent last month. Logs make up 9 per cent of the ANZ index. Williams said inventory was still being worked through in China, which accounted for 71 per cent of the export market for logs in the latest June year.

Sawn timber prices were up 0.2 per cent, supported by competition from domestic demand from the construction sector.