New Zealand’s commodity prices have increased by 17% this year and is expected to increase by 22% by December 2021. What has caused this increase in prices? With Covid restrictions lifted in many countries this has seen an increase in demand especially from China and South East Asian countries. Dairy, horticulture and forestry commodity prices have been the big winners. Kiwi fruit returns are expected to be the highest on record and log prices have increase over 20% in the last 6 months. Furthermore with the opening up of restaurants in the northern hemisphere the demand for meat will undoubtedly increase which is a good omen for sheep and beef farmers. At this time of year lamb prices normally fall but prices have actually increased over April and May.
Shipping costs have been very high of late but as they start to come down with more supply this will be a further boost to exporters especially bulky exports like forestry. It is expected that wood export volumes will be approaching record high levels over 2021 and 2022. The strong return from commodity prices will mean higher national incomes and will support the strength of the NZ$ and interest rates.
This could be a honeymoon period for New Zealand exporters as supply will eventually catch-up with demand and bring down prices. From a longer-term perspective, environmental constraints are biting on global food production. New Zealand’s dairy sector is at the coal face and the demands by government for fencing and other environmental restrictions means that there is less land being used and lower stock numbers. Other dairy exporters in Europe are also experiencing the same restrictions and it is the consumer who is likely to bear the increase in costs with higher retail prices.
Source: Economic Overview. Reshaping the world. May 2021