Commodity prices have hit a new record and could climb higher still over the remainder of the year, according to ASB.
The bank’s commodities index, which measures prices for dairy, sheep, beef, forestry and fruit, rose 2 per cent in New Zealand dollar terms to 117.7 last week, breezing past its previous peak set two years ago.
The gain was helped by a 2.8 per cent fall in the value of the New Zealand dollar against the United States dollar, with moves among the key commodities themselves relatively limited, said ASB economist Nat Keall.
“The weaker New Zealand dollar generated gains in local currency terms for most New Zealand major export commodities,” Keall said. “Previous spikes in our index have often been driven by price surges for one or two goods, as in the dairy price boom of 2013-14, but gains this time around are being broadly shared.”
The benefits for commodity producers like farmers and orchardists would depend on the volume being exported and their contract arrangements, he said.
Keall said the rebound in global commodity prices since the start of the year was “impressive”.
“While Covid’s initial impact initially hit commodity markets very unevenly, rising global demand and ongoing supply bottlenecks are lifting prices for most goods by double digits,” he said.
Prices for dairy, meat, forestry and seafood were all up between 10 per cent and 30 per cent since the beginning of the year in New Zealand dollar terms, he said.
Only fruit prices were lower, reflecting their earlier surge during the pandemic, he said.
New Zealand dollar prices for virtually every major commodity monitored by the bank were running ahead of their 10-year averages, he said.
The lower New Zealand dollar was turning “strong” global prices into “eye-watering” prices in local currency terms, he said.
The New Zealand dollar has traded between US70c and US74c this year, lower than previous commodity booms when it was trading above US80c, he said.
Keall said the durability of the gains was also impressive.
ASB’s index had been consistently elevated for quite a while now, with readings for March, April, May and June the four highest monthly averages on record in local currency terms, he said.
Producers were taking advantage of the boom, with higher volumes for most commodity exports despite problems posed by global shipping disruptions, he said.
Keall said he saw further upside for many global commodities in the months ahead.
“With global demand firming and logistics bottlenecks likely to continue constraining supply, commodity prices could ratchet higher still over the remainder of 2021,” he said.
ASB expects the New Zealand dollar to edge up to US74c towards the end of the year, which Keall said would crimp some but not all of those returns.
“Increased global supply will eventually weigh on global commodity prices but the timing for a return to normality remains highly uncertain,” he said.