National Australia Bank (NAB), Media Release, 21 June 2023
The NAB Rural Commodities Index* is now 25.2 per cent below year-ago levels, largely reflecting steep declines in cattle and lamb prices and a high chance of an El Nino event forming in coming months.
The Index dropped 0.7per cent in April and a further 3.4 per cent in May, reports the NAB June Rural Commodities Wrap released on 21 June 2023.
The benchmark Eastern Young Cattle Indicator (EYCI) is now around 575c/kg, around half its early 2022 peak.
NAB Senior Agribusiness Economist, Phin Ziebell, said drier conditions in Queensland combined with constrained processor capacity have heaped pressure on the cattle market and expectations of further dry weather to come have only added downside risk.
“An El Nino event is typically associated with hotter and drier spring-summer conditions across eastern and northern Australia,” Mr Ziebell said.
“We see a typical El Nino event potentially pushing the EYCI below 500c/kg in spring.
“Lamb prices have fallen roughly 200c/kg since late January, reflecting similar themes to the cattle decline. As a premium niche product, the trajectory of the global economy will be key to its price movements.
“Wool prices continue to slowly weaken, with the Eastern Market Indicator (EMI) falling below 1200c/kg last week. The fundamental problem is that demand is somewhat weaker amid a sluggish Chinese economy.
“We see a risk of ongoing volatility in 2023, with global growth slowing and consumer goods spending likely to weaken further.”
While the Bureau of Meteorology is currently on El Nino alert, indicating a 70 per cent chance of an event forming in coming months, climatic conditions have been mixed.
Mr Ziebell said while much of the continent is drying out, storm activity across Victoria, south-east South Australia and western NSW has seen above average soil moisture, and Western Australia’s wheatbelt is also generally wetter than average.
“Australian wheat prices have seen little change recently, with east coast futures in the high $300/tonne range. We see wheat closing out 2023 at around $350/t,” Mr Ziebell said.
“Canola prices have now stabilised, albeit substantially below their 2022 peaks.
“Dry conditions this year may affect dryland cotton yields, however, storage levels are excellent and likely to remain so for some time. The AUD Cotlook A is trading at around $700/bale.
“Sugar prices have eased a little following a surge earlier this year, but the conditions that underpinned higher prices – global supply concerns and strong demand – remain.”
NAB has again amended its rate call in response to RBA rate rises in May and June and now expects the cash rate to peak at 4.6% in coming months.
The Australian Dollar (AUD) has been higher recently, following lows last month. NAB sees the AUD reaching US72 cents at the end of 2023 and US73c at the end of 2024.
Read the full NAB June Rural Commodities Wrap here.
* 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.
