National Australia Bank (NAB), Media Release, 15 November 2022

Australian agricultural commodity prices have posted a slight uptick in the last two months with NAB’s Rural Commodities Index* rising 1.1% in October following a 1% increase in September.

Released on 15 November 2022, NAB’s November Rural Commodities Wrap reports much of the increase has been driven by higher wheat and cattle prices offsetting falls in cotton, fruit and vegetables.

NAB Senior Agribusiness Economist, Phin Ziebell, said while the weaker global economic outlook has materially dented demand for many non-energy bulk commodities, agriculture continues to see generally elevated prices as buyers weigh seasonal and geopolitical uncertainty. 

“Seasonal conditions have been generally very supportive this year, with a forecast big winter crop just around the corner. However, floods across parts of eastern Australia, particularly in Victoria, New South Wales and Tasmania, have destroyed previously good crops for some growers,” Mr Ziebell said.

“More wet weather is forecast across eastern Australia coming into summer, increasing the risk of further crop quality downgrades.

“Wheat has rallied since mid-September, reflecting global supply uncertainty, a choppy to lower Australian Dollar (AUD) and most importantly, the breakdown of the Russia-Ukraine wheat deal. Tight supply suggests high prices are likely to persist in coming months

“Looking at cattle, the July drop-off in cattle prices has now largely reversed, as buyers reassessed biosecurity risks. However, daily prices are again declining, and we expect November prices to be weaker than October.

“The main question for summer is how much a big northern wet season, driven by a third consecutive La Nina event, stokes restocker demand, against volatility in global markets and renewed pressure from higher feed grain costs. Our forecast track sees prices remain above pre-2020 levels into 2023.

“Cotton prices have now retreated significantly from extraordinary highs earlier this year. AUD denominated Cotlook A is down from a peak of $1,200/bale to around $700-800/bale recently. Despite the decrease, growers have every reason to remain optimistic given the seasonal conditions.”

Mr Ziebell said while prices and yields for a range of commodities continue to outperform, input costs and market volatility remain a challenge, with volatility likely to persist and perhaps even increase in 2023.

“Farm input prices have been on a tear since 2020, as Covid-19, trade disruptions, and more recently the war in Ukraine and associated inflationary pressures pile pressure on key inputs,” Mr Ziebell said.

“More recently, we have seen signs of stabilisation in fertiliser prices, albeit at historically elevated levels. The NAB Fertiliser Index is now more than double its pre-Covid average.

“Fuel prices remain high amid global oil uncertainty. Russia’s invasion of Ukraine saw prices skyrocket, but global growth concerns, Chinese Covid-19 cases, US Strategic Petroleum Reserve (SPR) releases and Organization of the Petroleum Exporting Countries (OPEC) cuts are all stoking volatility.

“For the Australian motorist, prices remain high at the pump. But the US Energy Information Administration (EIA) forecasts slightly lower prices in 2023, around $95/bbl, combined with our outlook for a slightly stronger AUD, this could see domestic fuel prices ease a little.”

NAB continues to expect the AUD to end the year around US65c before it strengthens to US72c by end 2023 and US74c by end 2024.

Looking at interest rates, Mr Ziebell said central banks are in the process of rapidly hiking rates across the world in response to persistently high inflation.

“Following the Reserve Bank of Australia’s 25 basis point hike to 2.85% in November, we expect further 25 basis point increases at each of the next three meetings, taking the cash rate to 3.6% by March 2023,” Mr Ziebell said.

“The Federal Reserve has now hiked by 75 basis points for the last four meetings in a row. We expect the Fed Funds Rate to peak at around 5% by March 2023.”

* 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.