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Softening cattle prices reflect ag commodity volatility: NAB

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National Australia Bank (NAB), Media Release, 20 February 2023

Australian agricultural commodity prices have continued to fall in the new year with the NAB Rural Commodities Index* now 14.4% below year-ago levels.

Lower beef cattle prices and to a lesser extent, grain prices, are the key drivers of the weakening in the Index, according to the NAB February Rural Commodities Wrap.

NAB Senior Agribusiness Economist, Phin Ziebell, said NAB sees moderately lower grain prices and further cattle price volatility this year, while prices for other major commodities have stabilised (cotton) or made gains (sugar).

“Australian wheat prices have been relatively stable since the big spring falls stabilised in December. Australian wheat futures are currently trading in the high-300s range. We see prices gradually easing this year, partly as a result of our higher Australian Dollar (AUD) forecast,” Mr Ziebell said.

“We still see an appreciating AUD this year, forecasting it to reach US 74 cents by the end of June and US 78 cents by the end of 2023.

“Australian cattle prices continue to track sharply lower, reflecting ongoing high turnoff, constrained processor capacity and a challenging US market. These risks – particularly around elevated domestic cattle supply – are unlikely to abate in 2023, and we see prices continuing to fall.”

Cotton prices have stabilised in the new year, with AUD Cotlook A around $730/bale.

“Water storage levels remain excellent although planting was challenging with a cold, wet spring. Even if 2023 is dry, the season should deliver a reasonable crop,” Mr Ziebell said.

“Sugar prices continue to post moderate gains – one of the few commodities in our Index seeing growth over the last year. We see the oil market outlook, combined with supply concerns, as key drivers in coming months. Prices are likely to remain elevated.”

Looking to farm input prices, Mr Ziebell said fertiliser prices have dropped substantially while feed grain prices are also trending lower.

“Fertiliser has now been steadily declining from extraordinary levels in 2022. Our fertiliser index dropped 16.5% month-on-month in January and is now 13.5% below year-ago levels. While this is undoubtedly good news for producers, it is hard to see a return to early-2020 levels any time soon,” Mr Ziebell said. 

“Our feed grain price index has now retreated substantially from its mid-2022 highs, falling to $293/tonne in January, down 2.9% month-on-month but still nearly 10% above year-ago levels.

“While partial data for February suggests something of an increase, a big and quality downgraded winter crop and our expectations of a higher AUD should keep a lid on prices for the coming months.”

Mr Ziebell said the global economic outlook remains murky, although much recent data have surprised on the upside.

“While we continue to expect below-trend global growth in 2023, the US economy has surprised somewhat on the upside in early 2023, with a strong GDP print and very strong employment,” Mr Ziebell said.

“Meanwhile, China’s sudden – and unexpected – abandonment of its zero-Covid policies in December led the country into a disruptive transition period before what is likely to be an economic rebound across 2023.

“However, inflationary pressures remain stubbornly persistent. We now see a much more hawkish RBA and forecast 25 basis point hikes at each of the next three meetings, to peak at 4.1% in May this year.”

Read the full NAB February Rural Commodities Wrap.

* 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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