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Rising commodity prices underpin positive outlook

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NAB Media Release, 22 March 2021

A record-breaking 2020-21 harvest and rising prices across all agricultural commodities have seen the NAB Rural Commodities Index rise 2.6% in February to now be 1.8% higher than the same time last year.

Source : NAB

The NAB Rural Commodities Wrap, released today, reports that with the notable exception of Queensland, summer had delivered generally wetter and cooler than average conditions, giving southern Australian producers good subsoil moisture levels heading into autumn.

NAB Agribusiness Economist, Phin Ziebell, said commodity prices, particularly across the global grains complex, were encouraging.

“While the Australian Dollar’s (AUD) appreciation has cut into local prices to some extent, Australian grain is now well priced in key southeast Asian export markets due to a steep rise in global shipping costs – a stark reversal from just two seasons ago,” Mr Ziebell said.

“Global shipping prices have shot up in response to the COVID-19 pandemic, which has made Black Sea grain more expensive. This suggests that Australia’s big 2020-21 crop will largely be moved at good prices. We see Australian wheat in the low $300/tonne range over coming months.”

While the impact of COVID-19 saw wool and cotton prices decline in 2020 as consumers cut their spending on clothing, there are encouraging signs that clothing spending is improving as people gradually return to the office.

“Internationally, extensive US government stimulus should put upward pressure on consumer spending, as should the rollout of COVID-19 vaccines,” Mr Ziebell said.

“Prices for wool and cotton have been increasing for the past six months. While the rising AUD will blunt this somewhat, this is encouraging news for fibre producers.”

On farm, input prices continue to rise, although more so for fertiliser and fuel than feed.

“Our fertiliser index soared nearly 39% month-on-month in February, although this is partly a technical function of the US natural gas input in to the index,” Mr Ziebell said.

“Both DAP and urea continue to rally – USD denominated DAP is 91% higher than a year ago and urea is 53% higher. This will translate to higher fertiliser costs domestically.”

Mr Ziebell said restocker interest remains the key driver of domestic cattle markets, with the Eastern Young Cattle Indicator (EYCI) around the 860c/kg mark, not far below record levels.

“With the Queensland wet season having disappointed in many areas, southern regions are in the driver’s seat. If restocker activity slows due to drier weather or a reassessment of future prices, there are some real downside risks,” Mr Ziebell said.  

“Lamb prices have eased a little recently, but remain at very juicy levels for producers. That said, we see lamb values as essentially maxed out at 2020’s peak. While there may be some seasonal upside coming into late autumn, this is unlikely to be held into spring unless restocking continues.”

Global Dairy Trade auction results, particularly for butter and whole milk powder, are encouraging. NAB’s export indicator rose 5% last month, which is encouraging news for opening prices.

Looking at the horticulture sector, fruit and vegetable prices were mixed in wholesale market data, with fruit prices gaining 3.5% while vegetables were off another 8.4% in February.

A lack of labour availability continues to be the major concern for industry, with some producers unable to harvest crops over summer. While it is unlikely that quarantine will end until later this year, special arrangements have been made for some farm workers.

NAB forecasts the AUD will reach 83 US cents by the end of this year.

Click here to download the NAB Rural Commodities Wrap (PDF).

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