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NZ commodity prices fall for sixth consecutive month

New Zealand commodity prices fell for a sixth straight month in November with the strong kiwi dollar denting returns, ANZ Bank New Zealand's monthly commodity price index shows.

“The fall in world prices was accentuated by the stronger NZD, which was up 3.4 percent month-on-month on a trade-weighted basis," ANZ agri-economist Susan Kilsby said. Annual growth in the NZ dollar index slipped into negative territory for the first time since October 2016, she added.

The world price index fell 0.6 percent in November and is now down an annual 5.3 percent. The stronger New Zealand dollar accentuated the decline in the currency-weighted index, which was down 4.4 percent in November and 4.2 percent from a year earlier.

Dairy prices were at their lowest level since August 2016, down 1.7 percent versus October and down 9.2 percent on the year.

Lower prices were recorded for whole milk powder, cheese and butter. Skim milk powder prices firmed as government stocks in the European Union steadily decline, although these stocks are not expected to fully clear until late 2019. Casein prices also firmed on the back of the stronger SMP prices.

Today's GlobalDairyTrade marked a turnaround in prices, with the GDT price index up 2.2 percent as the volume of product on offer shrank. Still, that's unlikely to prevent a lower farmgate forecast when Fonterra Cooperative Group announces its first-quarter result tomorrow.

The ANZ survey's meat and fibre index rose 1.1 percent in November but remained down 3.7 percent on the year. Beef prices lifted 2.4 percent during the month due to firmer US demand for imported beef, but prices are still 13.4 percent weaker than a year ago.

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Lamb prices lifted 1.2 percent during November and were up 7.4 percent on the year. ANZ said the outlook remains positive as the market transitions from old-season supply to new-season lambs.

The horticulture index fell 0.2 percent versus October and is down 8.2 percent on the year. A fall in apple prices was offset by a rise in kiwifruit prices. New Zealand's biggest apple exporter, Scales Corp, today upgraded annual earnings guidance, noting a record apple crop and better in-market pricing.

Forestry prices dropped 0.3 percent on the month but were still up 3 percent for the year. Log prices fell 0.5 percent in November but stocks held on wharves in China shrank to the lowest level seen in recent years and that was starting to translate to firmer prices. Harvest rates within New Zealand continue to lift but the increased supply is still being readily absorbed by international markets, Kilsby said.

Aluminium prices fell 4.6 percent on the month, wiping out October's gains. Prices are down 7.4 percent on the year. According to ANZ, both production and global stocks of aluminium are trending down. Some smelters in China, where over half of the world’s aluminium is produced, are closing due to tight operating margins and production restrictions designed to reduce smog. Global demand for aluminium has also fallen, so the reduction in production has not resulted in an improvement in prices.

It also noted that Japan is the largest market for New Zealand aluminium, which is used in the automotive industries and to produce beer cans. Beer consumption in Japan is trending down reducing demand for cans.

New Zealand's Tiwai Point smelter has been gradually increasing production. The resumption of production from a potline shut for six years will be formally marked tomorrow. That will boost annual production by about 9 percent.

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