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Commodity price indices hit record highs in May as dairy, kiwifruit, log prices surge

Commodity price indices hit record highs in May as dairy, kiwifruit, log prices surge

Commodity prices hit fresh record highs in both US dollar terms and NZ dollar terms in May as prices for dairy products, logs, kiwifruit, lamb and even wool surged.

ANZ said its World Price Index registered its fourteenth consecutive monthly rise in May, increasing by 2.5%, which followed and upward revision to 5.4% from 4.9% in April.

So what?

This surge in commodity prices will reinforce any concerns the Reserve Bank might have about an overheating economy.

The Reserve Bank is widely expected to hike the Official Cash Rate (OCR) from 2.5% in the next two months, possibly as early as next Thursday, pushing up term deposit and mortgage rates. However, the OCR is not expected to be raised as far or as fast as in previous recoveries because banks are less able to lend quickly and are being forced by shareholders and regulators to fund their lending locally, rather than from 'hot' money markets.

This means floating mortgage rates are likely to remain less than fixed rates for some time, given fixed rates are funded more from these 'hot' international markets. Term deposit rates will continue to rise and be significantly higher than the Official Cash Rate as banks compete hard for funds. 

Here's more detail from ANZ below. An interactive chart is also below.

Prices for eight of the thirteen commodities in the index rose.

Dairy prices continued to climb, rising 4 percent and are up by nearly two-thirds compared to 12-months earlier.

Large monthly increases were evident for the prices of skins (up 12 percent) and kiwifruit (up 11 percent). Increases were also recorded for wood pulp (up 6 percent), wool (up 5 percent), lamb (up 3 percent), venison (up 2 percent) and logs (up 1 percent).

Seafood prices were unchanged on the previous month. Prices for four commodities fell in May. World prices for aluminium (down 11 percent), apples (down 6 percent), beef (down 3 percent) and sawn timber (down 2 percent) fell compared to the previous month.

NZD commodity prices also reached another record high.

NZD bilateral exchange rate movements were partly offsetting, with the NZD strengthening against the euro, pound, and Australian dollar, but weakening against the US dollar and Japanese yen. Consequently the ANZ NZD Commodity Price Index recorded a 2.9 percent lift. NZD export commodity prices have increased by 30 percent over the last 12-months.

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That may be the experience for manufacturers, but farmers, foresters and fisherman are seeing record prices in both NZ$ and US$ terms.

Tough for you guys, but the numbers are much bigger for these commodity products.

What may save us from a big and fast increase in the OCR is that the farmers will use the windfalls to repay debts and the bankers are being very careful about lending into the sector.



Check out the interactive chart above for commodity meat, skin and wool prices in both US$ and NZ$ terms. They are at record highs.

Is your meat processing plant or wholesaler taking all the cash?

I welcome others' views on this. Where is the money going between farmer and plate and what will farmers do with it once they get it?