Changes in commodity prices could burst farmers' double-benefit bubble from the low currency and rising international prices, says the National Bank.
In its latest rural report, the bank warns farmers and rural investors that the need to allow for commodity price fluctuations in business risk planning is as strong as ever.
Price volatility will remain a feature of international commodity trade, it says.
The low value of the New Zealand dollar against its trading partners' currencies is going against its long-term relationship with commodity prices, which are rising.
History shows that the dollar recovered rapidly from low values in 1975, 1984 and 1995.
"Profit would be harmed if a rapid appreciation in the New Zealand dollar were not accompanied by a further increase in international prices," the bank says.
"A plateau in the rate of economic growth of trading partners may limit any further upside in international commodity prices from this driver.
"But international growth at this level remains strong and will support commodity prices around current levels."
The bank says prices for added-value products tend to be less volatile, so New Zealand must keep adding value to primary produce.
Top-quality farm products need to be continually improved, it says. "Consistent quality helps obtain a premium for the product."
- NZPA
Volatile commodity prices a worry - bank
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