Forestry bright spot in commodity prices

Nick Tuffley.

A positive trend for forestry prices - with a 0.8% lift in December in the monthly ANZ commodity price index - is expected to continue into 2019, ANZ agri-economist Susan Kilsby says.

The quantity of logs sitting on wharves in China was very low and was driving buying and keeping prices buoyant, she said.

The strength of that market had helped absorb the increase in logs harvested in New Zealand.

Other main markets for New Zealand logs, such as Japan and India, were not as buoyant as China but needed to pay competitive rates to secure supplies, Ms Kilsby said.

New Zealand commodity prices fell for a seventh consecutive month in December, although the 0.2% fall in the index was the smallest decrease recorded since May.

The index finished the year down 3.4% on the previous year. A strong year for forestry prices had not been enough to offset the weaker prices recorded in the dairy, horticulture and aluminium sectors, she said.

Dairy prices fell 2.5% in December to end the year down 6.2%. The dairy market had since improved, which would probably be reflected in January data.

Global dairy markets were benefiting from a slowing of milk production across the main dairying regions and an increase of in-market stocks, Ms Kilsby said.

In ASB's latest rural economic note, chief economist Nick Tuffley said the bank expected the strength of New Zealand production over the peak part of the season to constrain dairy prices in the near term.

The consistent underperformance of whole milk powder prices in GlobalDairyTrade auctions would be related to the strength of New Zealand dairy production, the weather being a boon over the peak production months.

ASB expected production would remain firm through the rest of the key parts of the season and the full season was likely to be up 5% from 2017-18.

Ms Kilsby said the meat and fibre index lifted 2.7% in December to end the year in positive territory, up 0.8% year-on-year.

Returns for both lamb and beef meat lifted in December and venison pricing remained upbeat.

International prices for lamb were up 6.1% year-on-year.

Beef prices had retreated over the past year, down 3.3%, but did record an uptick in December as demand from the United States for manufacturing beef improved.

Wool prices remained in the doldrums, falling 2.3% in December to end the year down 3.6%.

The horticulture index lifted by 0.9% but was down 9.6% year-on-year. Kiwifruit returns lifted in December as the last of this season's fruit was sold through European markets. Throughout 2018, apple prices dropped by 14.8% while kiwifruit eased 7.4%.

Aluminium prices fell 2% in December to finish the year down 8.7%. Aluminium prices peaked in April and had trended down since.

Sanctions on Russian aluminium producer Rusal were expected to be lifted later this month, which would increase the available supply and put further downward pressure on prices, Ms Kilsby said.

Rusal, which was responsible for about 7% of global production, was reported to have about 200,000 tonnes of aluminium warehoused in Rotterdam.

A slowdown in global market activity, particularly in China, was expected to limit demand for aluminium, putting further downward pressure on prices.