Oil is the main channel here. The surge in energy prices tied to the Middle East conflict lifted milk powder and aluminium, the main drivers of September’s gains. Combined with a weaker New Zealand dollar, that gives exporters a solid boost in local-currency returns, which supports farm incomes and the terms of trade. The flip side is higher import and freight costs, which add to domestic inflation pressure. That could complicate the Reserve Bank of New Zealand’s task. If US rates keep pressuring the kiwi lower, the local-currency boost to export earnings is likely to persist. Any easing in oil prices, however, could quickly reverse milk powder’s run.
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Oil is doing New Zealand’s dairy farmers a favour and a weak kiwi is doubling it, though the same conflict is pushing up the freight bill.
Summary:
- The ANZ World Commodity Price Index rose 0.6% m/m in September and is up 1.0% y/y, with gains in most categories.
- The rise was largely driven by sharply higher oil and gas prices.
- Skim milk powder jumped 9.2% m/m and is up 41.1% y/y. Butter fell 5.1%.
- Aluminium rose 1.1% on Middle East supply disruption. Freight costs also rose.
- The NZD index rose 2.8% as the New Zealand dollar weakened, partly on higher US interest rates.
New Zealand’s export commodity prices rose in September, ANZ Research said. The increase was lifted largely by a sharp rise in oil and gas prices tied to the Middle East conflict, while a weaker New Zealand dollar magnified the gains for local exporters.
The ANZ World Commodity Price Index rose 0.6% from August and is up 1.0% on a year earlier. Prices gained across most categories, with only beef and milk fat declining.
Dairy prices rose 1.0%, driven again by skim milk powder, which jumped 9.2% in the month and is up more than 40% from a year ago. ANZ said milk powder prices are tracking oil prices more closely, while butter, down 5.1% in September, is responding to stronger milk production in the Northern Hemisphere.
The meat and fibre index slipped 0.8% as lower beef prices outweighed gains elsewhere, while horticulture and forestry both firmed. Aluminium rose 1.1% and is up around 23% on the year, supported by tight supply as Middle East production and exports remain disrupted.
The conflict is also showing up in costs. Freight rates have climbed on disruption in the region. ANZ said higher shipping costs are preventing modestly stronger overseas log prices from flowing through to New Zealand harvesters and exporters.
In local currency terms, the picture was considerably stronger. The NZD Commodity Price Index rose 2.8% as the New Zealand dollar weakened through September, partly because of higher US interest rates. That boosts export prices in local terms, though ANZ noted it comes at the expense of dearer imports.
The report suggests the Middle East conflict is cutting both ways for New Zealand, supporting prices for energy-linked exports such as milk powder and aluminium while adding to freight and import costs. ANZ’s next update is due on November 4.
This article was written by Eamonn Sheridan at investinglive.com.