Photo:
Exporters are expected to continue to reap the benefits of a weak dollar and strong demand, despite a drop in prices for key agricultural products, including dairy, forestry and fruit.
Major commodities were traded in US dollars and ASB's latest commodity index was marginally higher on last year, while a differently calculated and weighted ANZ index was about 6 percent higher on a year ago.
The New Zealand dollar (NZD) traded between 54.85 and 61.2 US cents this year, and for the year to date was about 1.5 percent higher. A weaker NZD meant better export returns.
Dairy prices engulfed by supply
However, the global dairy auctions run by Fonterra had been falling over recent months, putting pressure on the co-op's mid-point $10 per kilogram of milk solids (kgMS), with its $9.75 forecast more in line with the NZX's forecast of between $9.68 to $9. 80 kgMS.
NZX dairy analyst Cristina Alvarado said dairy prices had fallen as global volumes increased, however, New Zealand's grass-fed dairy products were still in strong demand.
"It's the quality, it's the flavour, but also the safety that many countries have," Alvarado said, adding free trade agreements had benefited New Zealand during the ongoing global trade disruption sparked by the introduction of President Donald Trump's US tariff policies.
"Countries that bought more from the US before, have been buying more from New Zealand," she said.
Soft NZ dollar helps returns
Westpac chief economist Kelly Eckhold said the export sector remained strong, helped by the weak currency, which was also supporting the tourism sector, as visitor numbers increased.
"For most of the last six months to a year, we've had the unusual situation where the New Zealand dollar has been a bit weaker at the same time as external prices have been strong and also growing conditions have been good," Eckhold said.
"Usually, there's a bit of a counterbalance between some of these sort of factors, but they've all pushed in the right direction. Right now, what we're seeing is the New Zealand dollar weakening, so therefore that's helping support prices."
Eckhold said the New Zealand dollar would also continue to be supportive, with its weakness expected to persist until the economy improved and interest rates stabilised.
"I don't think that the exchange rate is likely to appreciate significantly until such time as it becomes clear that growth is starting to pick up sustainability in New Zealand, and the interest rates are no longer likely to fall," he said.
"Next year's outlook remains pretty uncertain still at this stage."
Eckhold said rural communities were expected to remain resilient to the soft economy, and for dairy farmers to make the most of the likely a large cash payout from the sale of [https://www.rnz.co.nz/news/business/577378/fonterra-ceo-says-lactalis-deal-will-allow-it-to-grow
F onterra's consumer brands business].
A further confidence boost will also come from the Trump administration's move to scrap the 15 percent tariff on imported beef and kiwifruit to reduce cost of living pressures on US consumers, although the sometimes erratic US tariff policy is making producers cautious.
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
