By JIM EAGLES
Export commodity prices fell a further 2.2 per cent last month and are now 10.8 per cent below the peak reached last May.
The downward trend in commodity prices, along with the steady climb in the New Zealand dollar, which closed yesterday at US42.31c, confirm that last year's export boom is as good as it is going to get.
The latest drop in the ANZ world commodity price index, released this morning, follows falls of 4.5 per cent in November and 2.3 per cent in October.
As a result the index is now 3.3 per cent lower than it was 12 months ago.
The latest fall, like the one recorded in November, is primarily due to slowing world growth and increased dumping of dairy products.
Dairy prices, which make up 31 per cent of the index, fell 3.9 per cent following the 11 per cent drop the previous month.
ANZ economist John Bolsover said the fall had occurred because "lacklustre demand continues to be exacerbated by the policies of the EU and the US".
The EU management committee for milk and milk products had, for the second consecutive month, decided to increase subsidies on milk powders, and the US had increased its export subsidies in response.
Reflecting this, Mr Bolsover said, in the past month prices for skimmed milkpowder had fallen by 5.8 per cent and for whole milkpowder by 4.4 per cent. Casein had fallen by 5.2 per cent and cheese by 2.4 per cent.
Butter prices remained unchanged, but were already close to their mid-2000 and 1986 lows as a result of a steady slide in the past four months.
Mr Bolsover said the situation once again demonstrated that "the EU and the US have the latitude to distort world prices, despite the tighter limits applied to subsidised dairy exports as a result of the successful application of the WTO Uruguay Round".
But, though the fall in dairy prices had the biggest impact on the index, commodity prices generally have been weakening.
Mr Bolsover said the impact of the weaker global economy had initially produced weakness in exports like wood pulp and aluminium which had a closer correlation with industrial production.
"Indeed, aluminium and wood pulp prices are now near the bottom of their cycles.
"In contrast, supply conditions underpinned world prices for many other commodities - such as dairy products, lamb and beef - through much of last year, despite the weakening global economy.
"However we are now seeing a more general weakening in prices for New Zealand's largely agricultural-based export commodities," he said.
Of the 17 commodities the ANZ monitors, nine recorded falls, five had no change and only three rose during the month.
The biggest fall, for the fourth consecutive month, was in skins, which fell by a further 17.2 per cent.
The ANZ said high prices over the past two years had resulted in a build-up of stocks, and tanners in Asia now had large stocks of finished leather.
Overall, beef prices held their ground during last month, but prices are expected to continue softening.
The ANZ said the market had been undermined by the discovery of a fourth confirmed case of mad cow disease in Japan, leading to reduced beef consumption there, which in turn diverted more US export beef on to the domestic market.
Beef prices are still 14 per cent higher than they were 12 months ago and are expected to at least stay above the levels of the past few years.
Timber prices fell 4 per cent during the month, and logs and woodpulp were unchanged.
The ANZ said NZ mills were still enjoying good sales in Australia and to a lesser extent Asia and the US.
Venison prices dropped 12.3 per cent and seafood by 0.4 per cent.
There was better news for sheep farmers, with wool (up 3.3 per cent) and lamb (up 1.3 per cent) joining aluminium (up 1.2 per cent) as the only commodities to rise.
The Reserve Bank's latest monetary policy statement forecast a commodity price drop of 10 to 12 per cent over the coming year, so the latest figures are not expected to alter its views on interest rate settings.
Dairy price falls weaken index
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