4 Oct 2011

20% fall in commodity prices tipped

9:11 am on 4 October 2011

ANZ rural economist Con Williams expects commodity prices to fall as much as a fifth from their peak in May, as global demand shows signs of slowing.

The ANZ Commodity Price Index fell 1.3% in September led by drops in prices for apples, kiwifruit, aluminium, and dairy.

Prices have fallen for the last four months, and are now 4% below their peak in May.

Mr Williams says most of the decline is due to increasing supplies, which have come on stream since farmers planted more crops and increased production to take advantage of higher prices.

He says demand for New Zealand's commodities had been holding up well, but there have been signs of it softening in recent weeks.

Mr Williams says prices were kept high by some temporary factors including bad weather offshore and in New Zealand leading to lower production and inventory levels being reduced.

That has now been reversed and he believes commodity prices could fall between 10 - 20%.