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As 2022 draws to a close, what’s ahead for ag commodities in 2023: NAB

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National Australia Bank (NAB), Media Release, 19 December 2022

Despite agricultural commodity prices retreating last month to the same level as November 2021, many Australian producers are seeing their most profitable period in living memory as 2022 draws to a close.

Released on 19 December 2022, NAB’s December Rural Commodities Wrap reports the bank’s Rural Commodities Index* was down 2.6% in November on the back of increasing volatility in livestock and grain markets.

NAB Senior Agribusiness Economist, Phin Ziebell, said while global volatility has continued to increase and some commodities are now facing a more challenging price picture in 2023, overall prices remain well above pre-Covid 19 levels.

“Wheat saw a big run-up coming into spring, but this has now fallen away as markets weigh global geopolitical events, US Dollar weakness, an uncertain supply and stocks picture and – domestically – a big Australian crop. The combination of these factors will see volatility remain high,” Mr Ziebell said.

“Data from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) puts this season’s wheat harvest at the biggest on record, despite devastating flooding across parts of eastern Australia.

“Cattle markets have seen a sharp decline recently as feedlots and processors eased buying in a market with very strong young cattle supply and more challenging US beef conditions. Further volatility likely awaits producers in 2023.

“Another emerging trend worth flagging is the potential for 2023 to be a good deal drier than 2020, 2021 and 2022. As the third La Niña in a row starts to break up, at least as forecast, early next year, conditions will turn to neutral before – according to some models – trending further towards the El Niño side of the ledger.

“While this is of course speculative, producers should be prepared for the three-year La Niña anomaly to end sooner rather than later.”

Besides grain and beef cattle, the outlook for other major commodities including sheep, wool, cotton, dairy and sugar, remains mixed heading in 2023.

“Looking at sheep, lamb prices are lower than year-ago levels but have held up well to strong supply,” Mr Ziebell said.

“Volatility is likely to reign in 2023, especially given the challenging global economic outlook. Wool is choppy on account of Chinese Covid-19 policies but is likely to see a drag from the global economy in 2023.

“Cotton prices continue to unwind, with AUD denominated Cotlook A now down into the low-$700/bale range. While last season was a monster and well timed for the price boom, 2023 planting has been much more challenging with the cold and wet spring. On the upside, water storage levels remain excellent.

“For dairy, while the last two global dairy trade auctions were positive, the trend is decidedly downward. This is a headache for Australian processors chasing falling milkflow with high farmgate prices in the $9-$10/kgMS range, but for now, returns remain very strong at a pre-farmgate level.

“Sugar prices are likely to remain elevated, driven by the oil market outlook, combined with supply concerns.”

Turning to farm input prices, NAB is forecasting fertiliser prices will remain elevated across 2023, despite prices being down on their previous peaks. 

Fuel prices remain choppy amid global oil uncertainty. Global gas market challenges are eating into diesel, meaning diesel fuel is likely to stay expensive into 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.

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