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.