Commodity prices continue descent

Whole milk powder was the only commodity to record a lift in the ANZ commodity price index for November.

The index dropped 1%, the sixth consecutive monthly decrease, and an easing in prices was seen in 12 of the 17 commodities monitored, with four unchanged.

The price of butter recorded the largest fall, easing 6% from a month earlier, cheese and aluminium prices fell 5%, wood pulp and wool 4%, logs and skins 2% and casein, kiwifruit, lamb, lumber and beef prices 1%.

From the peak measured in March, the NZD commodity price index has dropped more than 10%, with the series roughly where it was at the start of the year.

However, the overall level of the index remained elevated at 27% above the 10-year average recorded from 2000-2009.

Featuring wool as the monthly commodity, ANZ economist Steve Edwards said wool, as a proportion of New Zealand's total exports, had declined steadily over the past 60 years.

In the 1950s, wool accounted for about 40% of total merchandise exports. In the 12 months to this October, unprocessed wool earned $902 million in exports, representing less than 2% of New Zealand's total merchandise receipts. That figure jumped a further $116 million with the inclusion of carpets and other woollen products.

It has been estimated that wool now accounted for only 15% of New Zealand's gross farm income, compared with 35% 20 years ago.

New Zealand is the second-largest producer of wool in the world, behind Australia. Its two largest markets are China (44% of total wool exports) and Australia (11% of the total).

China's share has grown considerably over the past three years. Nearly all (94%) of New Zealand's carpet exports were sent to Australia.

The general longer-term trend in wool prices has been downward, partly reflecting a switch from woollen products towards synthetic goods. Over the past year and a-half, prices have rebounded, largely on the back of the return of Chinese buyers, some restocking of supply chains and the rapid rise in cotton prices which hit an all time high earlier this year.

However, cotton and synthetic prices have dropped as a result of global economic fears, Mr Edwards said.

Wool prices have held up as a result of reduced supply locally and in Australia, primarily as a consequence of wool traders selling down inventories while the price has been so high.


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