By BRIAN FALLOW
Export commodity prices lurched lower last month as the rising exchange rate amplified a dairy-driven decline in ANZ's world commodity price index.
World dairy prices, which make up a third of the index, fell a further 5.6 per cent in June and are now almost 40 per cent off their highs a year ago.
"It is frustrating," said ANZ chief economist David Drage, "that just as a better balance appeared to be emerging in global dairy markets they again had to adjust to an increase in European export subsidies."
The European Union increased export subsidies on milkpowders on June 13 and raised the production subsidy on casein.
Meanwhile a new year began on Monday for the United States' dairy export incentive programme.
"They have a full clip of ammo again and the indications are they will use it," Drage said. Given that US stockpiles of skimmed milkpowder had reached 450,000 tonnes the programme's limit of 68,000 tonnes was likely to be fully used again.
Casein exports to the US were also likely to suffer after the announcement that 150,000 tonnes of US milkpowder would be available for making casein, which the US traditionally does not produce.
The only non-dairy commodity prices to fall in world-price terms were beef (down 1.5 per cent) and seafood (down 0.3 per cent).
Drage said there were signs that the US beef market was strengthening and that the Australians had sorted out the allocation of their US beef quota, which had been overhanging the market.
Lamb prices stabilised last month after edging off their March high over the previous two months. Wool prices continued to improve.
But the sharp rise in the New Zealand dollar took its toll. "No commodity was unscathed, regardless of which cross-rate is relevant," Drage said.
"It is the first time I can remember that all 17 commodities registered a fall in New Zealand dollar terms."
In New Zealand dollar terms, the ANZ commodity index is more than 25 per cent below its peak in April last year but is close to its average level over the past 15 years.
Dairy subsidies and dollar pull export prices down
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