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New Zealand's Commodity prices fall again

Aug 9, 2005

New Zealand's Commodity prices fall again.

World prices for New Zealand's export commodities fell for a second consecutive month in July, driven mainly by a sharp fall in apple prices. but a weaker dollar meant our exporters actually did well.

The ANZ World Commodity Price Index declined 0.5% in July, but remained 4% higher than a year earlier.

Lower world prices for apples, kiwifruit, logs, wood pulp and wool largely offset higher prices for beef, venison, skins and aluminium in July.

ANZ economist John Bolsover says it's normal for apple prices top soften as the European season progresses.

But he says prices have shown a more marked deterioration this season because of an oversupply from other Southern Hemisphere producers and the blurring of seasons, as longer life apples extend the European growing season.

A weaker New Zealand dollar again provided relief to exporters in July, offsetting the decline in world prices, ANZ says.

On a month average basis the New Zealand dollar fell 4.2% against the US dollar, 3.3% against the euro and 2.4% against the Australian dollar.

The New Zealand Dollar Commodity Price Index rose 3.3% during the month, maintaining the index above the level recorded at any time during the 1990's.

"The broad theme is that the New Zealand dollar has absorbed most of the movement in world commodity prices during the past year. On the way up, world commodity prices have been dampened by a strengthening New Zealand dollar," Bolsover says.

"Now, in the early stages of a correction, a weaker New Zealand dollar has provided an offset to weaker world prices."

The risk profile for the New Zealand dollar is "firmly skewed towards the downside," Bolsover says.

"From a domestic perspective, pillars of support to the New Zealand dollar are evaporating. Growth has slowed, the current account deficit has hit 7% and the interest rate differential with the US is narrowing.

"It is likely that the catalyst for a further downward correction in the New Zealand dollar will come from a deterioration in commodity prices, which has the potential to soften the impact of weaker world prices."

Falls and rises

Six commodities recorded price decreases in July, four recorded price increases and three were unchanged.

Fruit prices led the declines, with apple prices falling 12.25% and kiwifruit prices dropping 3.5%. Apple prices were 6.8% below the level prevailing in July last year.

Log prices dropped 3.5% as a result of easing demand from Asia, while weakening global demand resulted in wood pulp prices falling 0.9%.

Wool prices fell 1.5% in the month, while the price received for lamb exports continued to hold up, largely unchanged from June with a 0.1% drop.

Venison prices recorded the largest increase, 4.6%, across the commodity mix. Venison prices traditionally rise at this time of the year, as chilled venison that is exported to Germany for the game season commands a higher price over frozen carcasses.

Aluminium prices rose 2.7%, following a three month dip. The other commodities to register higher prices were beef and skins, with respective increases of 0.5% and 0.3%.

The Dairy Index was unchanged in July, with activity quiet in the off-season. There was also no change to prices of seafood or sawn timber.

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