Monday, April 22, 2024

Commodities drive up index

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With the new farming year kicking off, high commodity prices are continuing to push positive views from analysts on the new farming year’s prospects.
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Speaking at Mystery Creek Fieldays, ANZ commodities analyst Susan Kilsby says the strength lay across the board, with the exception of wool, and has pushed the bank’s commodity price index to an all-time high.

“Logs are the only commodity actually at their highest point. The other sectors are not at their peak, but rather it is just that all sectors have combined at the same time to be close to their peaks, driving the entire index up,” Kilsby said. 

Log prices have increased by 25% on a year ago, with China driving demand just as global supplies of exported logs have tightened.

Up to May, the ANZ’s commodity price index had experienced eight consecutive increases, with the last one in May jumping 1.3% month-on-month.

Underpinning the increases is a steady lift in oil prices since the global pandemic’s peak, rising from US$42 a barrel in November to US$73.53 this month.

In the primary sector grain prices have experienced major surges in value, with wheat increasing from US$229 a tonne in March to US$278/t. Corn prices have lifted 19% from US$257/t in March to US$305 in May.

This has been largely driven by China’s efforts to restock its devastated pig population, recovering from the impact of African swine fever.

“They have a less efficient pig population, with stock that may not have normally been kept, requiring more feed per kilo of pork produced,” she said.

The Chinese pork industry is undergoing changes similar to what the dairy sector has undergone, with multiple smaller operators exiting the industry, and large European-style pork farming systems being installed to help improve productivity and reduce disease risk.

The trade war with the United States and the impact of covid on food supply lines has resharpened China’s awareness of its inability to completely feed itself, with the country doubling down on efforts to expand its production capacity.

However, Kilsby cautioned that New Zealand processors were facing real and lingering constraints to production that were taking the cream off what could be even higher returns. Global shipping costs have rocketed, while container supplies particularly for refrigerated units have been in dire shortage.

Globally, she says milk supply growth has been slowing, with increased environmental considerations affecting much of the world, with the exception of South America.

“There has also been a lot of talk about China growing its milk supply. I keep going back to the fact they do not have enough land and face constraints,” she said.

There is no cheap shipping for importing feed. The days of cheap backloading are gone.”

In the meantime, she doubts efforts by NZ to stop live trading in dairy cattle to China will significantly dent the country’s efforts to improve genetic stock, with stock likely to be sourced from Australia and Uruguay in future.

In coming years, she anticipates there will be more specific price signals paid to farmers for red meat supplies, reflecting the carbon footprint of rearing stock to certain ages.

“It is likely to be a bit like what the dairy companies are doing where they pay a premium for meeting certain targets,” she said.

“Sheep and beef are a bit further behind, and the longer-term trend is likely to be linking consumers’ needs to what is happening on-farm in the form of a more contracted supply agreement. Processors will have to price in at some point the emissions for different aged livestock. There is little incentive to do so at this point.”

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