NAB agribusiness economist Phin Ziebell

SOLID grain, lamb and wool prices drove a 0.7 percent rise in the National Australia Bank Rural Commodities Index in August.

However, NAB Agribusiness Economist, Phin Ziebell outlined how the modest upturn was highly region and commodity specific in the bank’s monthly Rural Commodities Wrap.

Grain-dependent Western Australia had the biggest index gain of all states, at 5.2pc, while Queensland was the weakest performer down 3.1pc.

Mr Ziebell said livestock results have been mixed, with lamb prices receding slightly and cattle showing resilience in the tough seasonal conditions.

“Lamb prices remain very strong, despite coming back slightly from a peak of 875c/kg in early September to 768c/kg.

“The expansion of the competing New Zealand dairy industry and the structural contraction of the Australian sheep flock over the past decades has set the scene for strong demand, and we anticipate that prices will stay solid this year,” he said.

“Wool cheques remain very strong, with the Eastern Market Indicator sitting at 2,067 c/kg.

“China remains the leading buyer of Australian wool, and while any major trade dispute between the United States and China could impact the market, prices are excellent right now.”

Mr Ziebell said cattle prices have stayed relatively resilient, with the Eastern Young Cattle Indicator breaking 500 c/kg in recent weeks.

“The ability for cattle prices to stay at these levels is largely weather dependent.

“The female share of slaughter numbers remains at drought levels, and water and feed shortages could force further destocking,” he said.

Pork producers are also feeling the pinch from higher feed grain prices, and pork prices were down 0.5 per cent in August before rising 1 per cent in September (to date).

Mr Ziebell said with much of the East still in severe drought, state-based wheat production forecasts have shifted significantly.

“Ongoing drought conditions have seen the New South Wales wheat production forecast drop to 2.3 million tonnes, while the forecast for Western Australia has risen to 9.5 million tonnes.

“The national wheat production forecast is down slightly this month from 18.4 million tonnes to 18.1 million tonnes, but the Western Australian wheatbelt remains on track for a good season,” he said.

“Late frosts are posing a problem right around the country, with some crops being cut for hay, but we still anticipate that Western Australia will still see above average yields.

“In addition, domestic prices remain high with the ASX wheat futures reaching $450/tonne last week.”

The persistently dry conditions will also be felt across the outlook for many other winter crops.

“High demand is expected to continue driving prices for most feed grain types, including barley, and frost activity in some areas is expected to keep yields under pressure,” Mr Ziebell said.

“Canola prices have also seen a decent upside for the first time in several years, but a lack of rain has led to some crops being cut for hay. While high demand has led to strong sorghum prices, yields could be poor unless the season dramatically improves between now and the end of the year.”

Cotton prices remain strong, despite falling slightly from $645/bale to $634/bale in September. The latest ABARES forecast anticipates that cotton production will fall by 44.5 per cent in 2018-19 due to less available irrigation water and a subsequent reduction in plantings.

The Bureau of Meteorology’s three-month outlook is grim, with much of the country less likely than average to exceed average rainfall. The Bureau’s ENSO outlook remains on El Nino watch, pointing to a roughly 50 per cent chance of El Nino developing in spring this year.

The AUD is expected to trade with a degree of volatility inside a USD 0.70 – 0.75 range. This is in the context of heightened trade tensions between the US and China, and strong US economic data.

Click here to download the September Rural Commodities Wrap.

Source: NAB.