3 Apr 2009

Commodity prices up after eight months

10:33 am on 3 April 2009

International commodity prices rose for the first time in eight months, helped by better demand for meat and dairy products, a survey shows.

The ANZ Bank Commodity Price Index shows prices rose 1% in March compared with the previous month, although it is still down 31% compared with the same period a year ago.

Returns to farmers, when converted to New Zealand dollars, fell by 3.4% because the appreciating local currency wiped out the gains.

ANZ economist Philip Borkin says higher world prices are welcome, but the rise in the currency is not good news for an economy in need of an export-led recovery.

Mr Borkin says ANZ expects the dollar to fall to 45 US cents by the end of the year.

Prices for beef, lamb, wool and aluminium rose, as did dairy prices, which increased for the first time in seven months.

Forestry prices fell, led by logs and lumber, while seafood and venison prices also declined.

The rise in dairy prices has been confirmed by Fonterra's internet-based sales auction, which recorded a rise in whole milk powder prices for the second successive month.

The co-operative says the average price across all products and contract periods increased 3.5% compared with the previous month to $US2,235 a tonne.

Fonterra says firm demand is behind the rise - only the second successive price increase since the internet-based system was introduced in July.

Fonterra says the higher prices are encouraging, despite the economic downturn.

Managing director of global trade Kelvin Wickham says the firmer prices indicate supply and demand for whole milk powder are returning to sustainable levels - though the industry worldwide is yet to experience a return of consumers buying dairy products from their supermarkets at previous levels.

Analysts are cautious about getting too optimistic. Westpac senior economist Doug Steel says it is difficult to predict whether the rises are sustainable.