ANZ commodity index up 0.6% in September on oil-linked gains for milk powder, aluminium

The primary driver is oil. Energy prices surged due to Middle East tensions, lifting milk powder and aluminium—the main contributors to September's gains. Together with a weakening New Zealand dollar, this provides exporters with a significant boost in local-currency returns, bolstering farm incomes and the terms of trade. On the negative side, higher import and freight costs add to domestic inflation, potentially complicating the Reserve Bank of New Zealand's policy path. If US interest rates continue to pressure the kiwi lower, the local-currency support for export earnings will probably persist. However, any drop in oil prices could quickly undo milk powder's recent gains.

New Zealand's dairy farmers are benefiting from oil prices, and a soft kiwi amplifies that benefit, but the same conflict is raising freight costs.

The ANZ report's key figures are listed below.

• The ANZ World Commodity Price Index increased 0.6% month-on-month in September and rose 1.0% year-on-year, with most categories posting gains.
• Sharply higher oil and gas prices were the main driver of the increase.
• Skim milk powder surged 9.2% month-on-month and is 41.1% higher year-on-year. Butter declined 5.1%.
• Aluminium gained 1.1% due to supply disruptions in the Middle East. Freight costs also increased.
• The NZD index climbed 2.8% as the New Zealand dollar depreciated, partly due to elevated US interest rates.

According to ANZ Research, New Zealand's export commodity prices increased in September. The rise was driven mainly by a steep increase in oil and gas prices linked to Middle East tensions, with a softer New Zealand dollar amplifying the boost for domestic exporters.

From August, the ANZ World Commodity Price Index advanced 0.6% and is 1.0% higher than a year ago. Most categories recorded gains, with beef and milk fat the only ones to fall.

Dairy prices increased 1.0%, once more led by skim milk powder, which rose 9.2% during the month and is over 40% higher than last year. According to ANZ, milk powder prices are following oil prices more closely, while butter, which declined 5.1% in September, is reacting to increased milk output in the Northern Hemisphere.

The meat and fibre index edged down 0.8%, with falling beef prices offsetting increases in other areas, while horticulture and forestry both strengthened. Aluminium advanced 1.1% and is approximately 23% higher year-on-year, aided by constrained supply as Middle East output and exports stay disrupted.

Costs are also being affected by the conflict. Freight rates have risen due to regional disruption. ANZ said elevated shipping costs are blocking slightly higher overseas log prices from reaching New Zealand harvesters and exporters.

In New Zealand dollar terms, the situation was far stronger. The NZD Commodity Price Index gained 2.8% as the kiwi depreciated in September, partly due to higher US interest rates. This lifts export prices in local currency, but ANZ pointed out that it also makes imports more expensive.

The report indicates that the Middle East conflict has a dual impact on New Zealand, boosting prices for energy-linked exports like milk powder and aluminium while increasing freight and import costs. ANZ's next update is scheduled for November 4.