Lift in commodity prices gives boost to the economy – here’s hoping we can keep on shipping our goods to market

New Zealand’s Covid-battered  economy  is  once  more sustained   by  its  primary  industries, as  international tourism languishes  and  earnings  from  its  international education arm are  all  but  invisible.

Despite  high  charges    for   shipping,     an  exchange   rate stronger  than   exporters  would  like   and  (some  would  say)  a  government   which  does  little  to  encourage  farmers, output  from the  rural  regions   is   again pumping  the  lifeblood   into   an  economy  which might otherwise be  gasping for air.

News  from  the  ANZ  this  week indicated  its  World Commodity Price Index lifted 1.5% in September, partially unwinding the previous month’s fall. The lamb sub-index is now at a record level, driven by stronger prices for all cuts.

ANZ Agri Economist Susan Kilsby reported dairy and forestry both regained some ground and aluminium and meat prices  were strong.

Dairy prices rose 1.3% in September, halting three months of falling prices. Dairy product is typically plentiful at this time of year as NZ dairy exporters start forward selling new-season production.

Kilsby  says this year the market is a little tighter than usual and Fonterra has reduced its offerings on the GlobalDairyTrade platform  because of to strong sales through alternative channels.

The meat and fibre index lifted a further 0.6% in September on the back of higher international prices for lamb.

Kilsby  says  unfortunately, wool lost some of the gains it made the previous month. Beef prices eased a little during September but returns are still very healthy.

Demand for beef remains robust from both China and the United States, whilst the volume of beef available for trade globally has been curtailed by various trade restrictions.

The horticulture index fell 1.5% in September. Apple prices have continued to trend down as new-season apples from the Northern Hemisphere compete with our end-of-season exports. Kiwifruit demand remains robust.

The forestry index lifted 4.7% to claw back some of the previous month’s losses. Export demand remains relatively robust despite China’s housing development industry being under pressure, made acute  by the  Evergrande  crisis.  Logs are difficult to source from many other markets and the high shipping costs make it particularly prohibitive for China to source logs from South America. Local mills have also been competing strongly with export markets to secure logs.

Aluminium lifted a whopping 9.6% in September, and is up more than 60% over the past year. Aluminium prices are being supported by limited supply from China as China addresses an electricity shortage.

 Point  of  Order imagines the  government   will be congratulating  itself on deciding to  give  a  handout  to  keep  the  Tiwai Point  smelter  going  another  three  years.

In local currency terms, the ANZ index gained just 0.4% as the NZD-TWI lifted 1.1% in the month.

The  global  shipping  industry remains congested and shipping costs are still rising. In August, the Baltic Dry Index lifted a further 26% to put shipping costs at their highest rate since September 2008.  There appears to be no end in sight, with high freight costs so far doing little to dampen demand for imported goods.

More ships are being built but this takes two to three years, so it won’t solve the freight crisis anytime soon.

Point of  Order  believes it is  vital  the flow is not interrupted, despite  the difficulties  in  getting  the farm  and  forestry exports  to  market, -and  farmers can  count on  continuing  buoyant  returns.

Otherwise it  will be  a   bleak  Christmas for  the  whole  country.

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