A bounce in beef prices on commodity indexes bodes well for New Zealand's export sector throughout 2016, but comes with a caution about US production increasing.
The ANZ commodity price index, released yesterday, showed the index had lifted by 1% in May, but was still back 11.7% year on year, ANZ agri-economist Con Williams said.
"In recent months, prices look to have found a floor that they are now bouncing along,'' he said.
The gains were "broad-based'', given horticulture prices lifted 6.2% during the month, with the start of new season crop sales, plus gains in seafood, up 1.1%, forestry up 0.9% and meat up 1.5%.
"The meat category was generally positive.
"Beef performed the best, improving 2.8% month on month and wool was also up 1.5%,'' he said.
ASB economist Nathan Penny said beef prices had ‘‘bounced'', despite his having sold them short in earlier commentary.
"We had indicated that we expected [beef] prices to merely remain high, when in fact prices seem to have caught a second wind,'' he said.
ASB's commodities weekly report said based on the speed of the recent price increase, prices could rise further from here.
"Feasibly prices could lift another 5% -10% . . . we wouldn't rule out prices surpassing the record levels set, back in spring last year,'' he said.
However, he highlighted the long-awaited rebound in US beef production was "still in its infancy''.
With growing Chinese demand, Mr Penny expected beef prices were "unlikely to come off the boil'' during 2016.
The strong meat price gains had pushed ASB's index higher in all currency denominations during the past week; rising respectively 1% and 2.1% in US and New Zealand dollar terms.
"Surging beef prices accounted for much of the 3.4% rise in the sheep-beef index in US dollar terms,'' he said.
Both economists noted dairy prices were flat, or in some products declined slightly, for the period.
Mr Williams said there were only small movements in dairy prices. Weakness centred on skim milk powder, down 1.8%, due to large European stocks, and butter down 1.4%, he said. ‘‘The other categories of whole milk powder, cheese and casein were largely unchanged,'' he said.
He said a lower New Zealand dollar provided a further boost for New Zealand dollar prices, which were up 2.5% in May, except for businesses exporting to Australia.
"This largely reversed the fall in April, leaving annual New Zealand dollar prices back 3.5%, year on year,'' he said.
"It looks like a good start to the new season for pipfruit and kiwifruit growers, with prices for both lifting in May,'' he said.
Solid prices combined with record-sized crops would see those sectors climb further up the export league tables this year.
"Back-to-back solid returns are creating momentum for new investment and expansion from orchards through to pack-houses and cool-stores,'' Mr Williams said.
In the forestry category, both log and wood pulp prices improved, up respectively 1.2% and 1.4%, while seafood rises came from snapper and squid prices.
