THE fall in Australian saleyard trade lamb prices over recent months has reflected concerns about the resilience of international demand, according to NAB’s latest Rural Commodities Wrap.

NAB agribusiness economist, Phin Ziebell, said while strong seasonal changes have been an increasing feature of Australian lamb markets, the lamb price fall this year predates the major spring flush of new season lambs.

This reflected concerns around the resilience of international demand – not a strong feature of recent price cycles, he said.

“It is possible that there will be further downside in spring as more supply becomes available.”

Although most lamb prices improved over the past week, with the Eastern States Trade Lamb Indicator finishing last week at 675c/kg, up 39c/kg week-on-week, this was 112c/kg lower than a month ago, and 122c/kg under the level a year ago.

Mr Ziebell said despite the recent price lifts there is still concern about the global demand fundamentals for lamb.

“It’s been a big drop pretty fast and it’s not a spring flush drop yet, that’s the worry.

“We haven’t actually seen that (spring) supply come to market yet.”

Meat & Livestock Australia’s Livestock Market Reporting Service reported the other eastern states indicators as also improved last week, apart from the restocker indicator, which lost three cents to 856c/kg, albeit 133c/kg higher than a week ago. After Friday’s saleyard sales, the other lamb indicators were: Merinos 637c/kg, up 5 cents; light lambs 701c/kg, up 2 cents, and heavy lambs 636c/kg, up 6 cents.

Appreciating A$ is offsetting seasonal condition benefits

The NAB Wrap report said continued appreciation of the Australian Dollar (A$) has offset better seasonal conditions to see the NAB Rural Commodities Index fall slightly by 3.7 percent in August.

Mr Ziebell said while much of the appreciation of the A$ is down to persistent weakness in the US dollar, China’s demand for Australian resources for its industrial and infrastructure led recovery will put further upward pressure on the Australian currency.

“NAB forecasts point to an A$ around the US80 cent mark by mid-2022.

“This will be a headwind for Australian agricultural commodity prices, particularly local grain prices,” Mr Ziebell said.

Crop outlook challenged by drier conditions

Driven by summer rain and consistent wetter than average seasonal outlooks, NAB’s elevated expectation for the 2020-21 crop outlook has been challenged by drier conditions in late autumn and into winter.

“Subsoil moisture levels are average to above average in New South Wales and southern Queensland, but average to below average across the Western Australia (WA) wheatbelt, South Australia and Victoria,” Mr Ziebell said.

“While the autumn-winter dryness does not appear to have imposed major damage to crops or pasture, it leaves less in the tank in the event of a dry spring, a risk factor for the WA wheatbelt and parts of South Australia.

“Our latest wheat crop forecast is for 24.7 million tonnes nationally this season, an average result that would be an improvement on last season’s yields if it transpires,” he said.

“However, with the Bureau of Meteorology (BoM) projecting a much wetter than average spring in the eastern states, indicating a roughly 70pc chance of La Nina forming in the coming months, scope for upside to the crop remains.”

Positive results from August rain in WA

State business bank executive, regional and agribusiness WA, Jeff Pontifex, said while WA yields remain sensitive to individual rainfall events, the culminating results of the late August rain have been positive.

“There is a renewed sense of cautious optimism amongst WA growers following the August rainfall, and on the basis that good spring finishing rains deliver,” Mr Pontifex said.

In terms of prices, should the winter crop perform, much of the current domestic basis will dissipate and NAB predicts domestic wheat in the $300/t range at the end of 2020.

“There may be some upside pressure in grain prices if Chinese flooding leads to higher Chinese demand, but it isn’t clear if these will flow through to wheat,” Mr Ziebell said.

“More challenging will be regaining market access into traditional export markets in South-East Asia following a period of lower exports due to domestic feed demand and poor domestic grain supply.”

The Eastern Young Cattle Indicator (EYCI) has hit another record, closing on 800c/kg, reflecting substantial restocker demand and expectations of a big Spring in Queensland, although global demand fundamentals are moving in the opposite direction, which is a concern.

Click here to download the NAB Rural Commodities Wrap (PDF).