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Autumn break buoys outlook amid lower agricultural commodity prices

Beef Central, 26/04/2023

Australian agricultural commodity prices took another downward turn last month with the NAB Rural Commodities Index* now 19.7% below year-ago levels.

NAB Agribusiness economist Phin Ziebell

Lower beef, lamb, canola, dairy and wool prices saw the Index fall 3.6% month-on-month, according to the bank’s April Rural Commodities Wrap released today.

On the upside, much of south-eastern and south-western Australia has enjoyed an early autumn break, setting up an ideal start to the winter cropping season in many areas.

NAB Senior Agribusiness Economist, Phin Ziebell, said farmers planting winter crops find themselves in a materially better position than the outlook suggested last month.

“This is a result of good rainfall across south-west Western Australia, Victoria, South Australia and parts of New South Wales. While the outlook remains dry, producers will have confidence going into planting,” Mr Ziebell said.

“Yields are likely to be below last year’s record conditions, with the dry outlook and El Nino potential key risks.

“March crop forecasts from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) suggest an indicative domestic crop of 28.2 million tonnes of wheat, 9.9 Mt of barley and 5.4 Mt of canola, noting that we are only just entering the season.”

Mr Ziebell said while cattle price falls have grabbed headlines this year, the Eastern Young Cattle Indicator (EYCI) has been much more stable since mid-March.

“This is a welcome break from a sharp decline that began in November last year. While downside risks remain, the early autumn break has given producers a breather,” Mr Ziebell said.

“ENSO conditions are currently neutral, however, all but one of the Bureau of Meteorology’s surveyed international models point to an El Nino developing by August. Meanwhile, the three-month rainfall outlook points to drier than average conditions across most of the continent.”

Among the other major commodities, sugar prices have surged recently, reflecting global supply concerns especially in Brazil and India, and strong Chinese demand.

“Surprise cuts to oil production, announced by the Organization of the Petroleum Exporting Countries (OPEC) earlier this month, will likely only increase upward pressure. Sugar will be a commodity to watch in coming months,” Mr Ziebell said.

Looking at farm inputs, fertiliser prices continue to plummet and feed grain prices have risen recently.

“While fertiliser prices are still high by historic levels, prices are now falling so rapidly that another few months at this rate will see a return to 2020 levels,” Mr Ziebell said.

“That said, we remain cautious about this scenario, particularly given OPEC’s unexpected output cut and the potential for further European natural gas supply challenges this coming northern winter.

“Our feed grain price index has jumped recently, up 4.4% in March, although a little lower so far in April.

“While last season saw a big and quality downgraded winter crop, 2023 is looking much drier and hay has been tight as producers scrambled to cash in planting grain last year. We still don’t expect major upside this year, but a very dry season could test this.”

NAB now expects the cash rate to peak at its current level of 3.6% following the RBA’s decision to pause in April.

The Australian Dollar (AUD) has essentially tracked sideways over the last month – between roughly US66.5 cents and US68c – and NAB now sees the AUD reaching US 74c at the end of 2023, down from US78c previously.

To read the full NAB April Rural Commodities Wrap, click to download PDF report

* The NAB Rural Commodities Index is based on the price and production data for 28 commodities and is weighted by their relative size in Australia’s agricultural sector.

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