“With the global economy reopening, consumption lifting and growth forecasts strengthening, demand for most major commodities have moved up sharply.
“Meanwhile, supply for many goods remains constrained.”
Keall called that a potent combination for commodity prices and he expected the favourable supply and demand conditions would continue, with little prospect for a sharp correction in the near term.
But on the pain side of his headline, labour woes and rising cost pressures look set to remain for some time to come.
Dairy prices are the star of the show, reflected in ASB’s forecasts of $7.60/kg milksolids final payout for 2021 and a very bold $8.20 for the new season.
“We are seeing the makings of another strong season and even a price nearer the bottom end of Fonterra’s forecast range ($7.25-$8.75) would be a solid result,” he said.
The recovery of lamb prices from the covid-19 restaurant shutdowns has been impressive and NZ exports are enjoying a strong winter.
The lamb price index has risen nearly 30% over the past quarter.
Now that $9/kg contracts are available for early spring lambs, Keall expected that level to be topped over the next few months.
Beef prices have also bounced back from covid-19 depressing effects, lifting 20% in the past three months.
“While the moves in beef prices haven’t been as spectacular as those for lamb, the prospect that prices could exceed their 2019-20 record peak ($5.75/kg) remains live,” he said.
But animal feed costs are increasing quickly, having spiked briefly during the pandemic.
“Grain and oilseed markets remain tight coming off the back of the 2020 season and are likely to remain so given this season’s crop yields aren’t projected to be enough to restore the balance,” he said.
“Prices are getting further support from China’s insatiable demand for feed.”
He says labour shortages are really starting to hurt producers after 18 months of border closures.
“It increasingly looks as if employment is running up against its maximum sustainable level, and we see wage pressures strengthening over the course of the year.”
Unfortunately, any border opening was getting pushed back by the delta variant of covid-19.
