Sunday, June 4, 2023

Low dollar a boon for agribusiness

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Strong month-on-month price increases for most commodities saw Australian agribusiness industry conditions rise to record levels, according to Rabobank, and key drivers are expected to hold out to the December quarter.

The latest Rabobank Rural Commodity Price Index rose by another 3.26% in August to its highest-ever reading.

“A softer Australian dollar, strong demand, and gains in global prices for wheat, barley, canola, cotton, beef, lamb, and sugar were behind the spike. Other prices were flat or only marginally lower month-on-month,” Rabobank said.

“With drivers of current prices expected to remain largely in play over 2H 2021 and ongoing positive seasonal conditions, the scene for a very favourable year is coming together for Australian agriculture.”

Continued rainfall during August has ensured that farmers in most parts of southern Australia are heading toward the conclusion of the winter season in a great position, according to Rabobank. Soil moisture remains average to above average in most regions, which will support crop flowering, grain fill and pasture growth heading into the spring.

According to ABARES Agricultural Commodities Report, the value of agricultural exports from Australia set record heights of $54.7 billion over the same period, an increase of 12%. High prices across almost all commodities, with favourable environmental conditions are set to result in harvest approaching all-time records.

And with a month still to run, rainfall in most southern regions has exceeded the five year median for the growing season. Farmers will be looking for warmer temperatures and clear days to support plant growth. The Bureau of Meteorology (BOM) rates a high chance of the next three months being wetter than usual for central and eastern Australia. The BOM also expects that minimum temperatures will be well above median, which will decrease frost risk, although south western Western Australia is an exception.

The BOM this week moved to a La Niña watch, which means there is a 50% chance of the rain-friendly driver returning in the coming months – double the usual chance. Five out of seven models monitored by the BOM suggest thresholds will be met in November and December.

Firming production prospects mean Australia getting ready to take full advantage of very favourable global grain prices. Local track wheat prices are expected to remain close to $360 per metric tonne over the next 12 months, supported by strong global prices and continued demand for Australian wheat, particularly in Southeast Asia.

A close eye should be kept on the New Zealand spring peak, according to Rabobank senior analyst, dairy, Michael Harvey, which will set local dairy price direction in the coming months.

“Global markets remain mostly balanced, but China import demand continues to do the heavy lifting in terms of trade growth. Rabobank is expecting a slowdown in China’s import needs in the second half of 2021 and beyond. If Chinese import demand slows, inventory build-up and downward price pressure on milk powders will ripple through global dairy markets.”

Beef records continue to be broken, and national saleyard prices across all cattle classes remain strong. Rabobank believes cattle prices are over-inflated, but the ongoing low cattle numbers and favourable seasonal outlook suggest prices could follow the trend of recent years in which 2H prices were stronger than 1H prices.

There are some indications of a rebuilding cattle herd, Rabobank senior analyst, animal protein, Angus Gidley-Baird said.

“Cattle on feed numbers hit their second-highest level ever in Q2, and we saw east coast weekly slaughter numbers climb back over 100,000 head at the end of August for only the eighth time this year, suggesting more cattle are becoming available.”

There has been a slight hiccup in sheep meat prices, with a contraction in supply following a “false start” to the new season seeing prices jump. A seasonal decline is still expected, however, although with strong demand the decline will not be as large this season, according to Gidley-Baird.

The outlook for wool prices is still positive, despite the Delta strain creating a cautious atmosphere, however the variant continues to cloud the pathway to reopening food markets.

Strong demand for cotton prices and ongoing weakness in the dollar has Rabobank forecasting cotton prices around $620 per bale for the September quarter.

High global fertiliser prices are expected to stay until at least the new year, supported by the ongoing strength of commodity prices.

Rabobank continues to see downside for the Australian dollar, adjusting its forecast down to US70c for the December quarter, before listing back toward US71c during the first half of 2022.


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