By BRIAN FALLOW economics editor
The lush oasis of higher world commodity prices has been turned into a cruel mirage by the soaring New Zealand dollar.
ANZ's Commodity Price Index, released this morning, rose 0.4 per cent last month in world price terms, driven by the fifth consecutive monthly rise in dairy prices, which are now 3.5 per cent higher than a year ago.
But in New Zealand dollar terms the index fell 2.1 per cent and is 13.7 per cent lower than a year ago.
ANZ chief economist David Drage said the exchange rate adjustment was based on the average level of the major cross rates last month.
The strong currency gains since mid-December meant that if present exchange rates were used to convert world commodity prices, the New Zealand dollar index would have fallen a further 5.9 per cent and be 18.9 per cent below the level prevailing a year ago.
But despite the impact of the dollar's recovery, most of the spectacular gains achieved during the 2000/01 agricultural export boom had been preserved, Drage said. This highlighted the resilience the export sector had shown both to the weak world economy and the currency appreciation.
"For example, export revenue in the three months ended November was down less than 10 per cent on the same period in 2001, when the export cycle was near its peak."
Dairy prices, which make up about a third of the index, improved 2.9 per cent last month in world price terms.
They remain 21.6 per cent below their peak in July 2001.
Beef prices increased 1.6 per cent.
"While modest, this could signal an upturn in beef prices as supplies in the United States tighten," Drage said.
"The US Department of Agriculture forecasts US beef production to fall by around 5 per cent in 2003 as the cattle cycle moves into its [herd] rebuilding phase."
Lamb prices firmed 0.1 per cent last month, concluding a good year underpinned by steady demand and low production in Europe.
Timber prices fell 5 per cent, reflecting a seasonal slowdown in US demand. Prices for logs and wood pulp remained unchanged.
Seafood prices declined 2.9 per cent after remaining steady for most of last year.
Prices for apples and kiwifruit were unchanged.
Strong dollar eats gains
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