National Australia Bank (NAB), Media Release, 14 August 2023
Australian agricultural commodity prices experienced a mixed month in July, with wheat and cotton prices edging up, while dairy and barley prices eased, and cattle prices tracked sideways.
The movements are reflected in the NAB Rural Commodities Index* which declined 2.1 per cent in July.
This was the ninth month in a row to record declines, with the Index now 29.6 per cent below the peak recorded in June 2022, according to NAB’s August Rural Commodities Wrap released on 14 August 2023.
Unlike the past two months, where declines in the Index were driven by cattle and lamb prices, there were a wider range of commodities influencing the trend in July.
The main contributors were dairy, which was down around 7.3 per cent month-on-month, vegetables (down 11 per cent), barley (down 5.3 per cent) and fruit (down 4.4 per cent).
NAB Senior Economist, Gerard Burg, said although cattle prices tracked broadly sideways in July, the stabilisation could prove temporary.
“An El Nino event, which is likely to drive drier conditions, combined with plenty of stock and constrained processor capacity, could see prices falling around spring,” Mr Burg said.
“Australian wheat prices edged slightly higher in July but are still within the broad range exhibited since late 2022. We still see some modest downward pressure on prices towards the end of the year.
“Canola prices recovered to around $700/tonne in mid-July, having plunged between March and May, before subsequently trending sideways.
“While Australian grain growers have welcomed China’s decision earlier this month to drop its tariffs on Australian barley, it’s too early to know what impact this will have on prices, as it will take some time before barley flows back into China again.”
The severity of El Nino conditions, and its impact on rainfall in key growing regions, remains uncertain, however it is set to negatively impact winter crop production.
Cotton remains stable with the Cotlook A edging back above $700/bale in late July, while sugar prices also increased from mid-July onwards, recovering some of the losses recorded across June.
After the RBA kept interest rates on hold in August, with the cash rate at 4.1 per cent, NAB has lowered its expected peak for the current cycle to 4.35 per cent, down from its previous forecast of 4.6 per cent.
With the peak of rates slightly lower, NAB has pushed back its expectation for the beginning of rate cuts to August 2024, with the cash rate to return to around 3 per cent in early 2025.
Read the full NAB August 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.
