A lower-than-expected Australian dollar combined with good seasonal conditions continue to buoy the outlook for Australian agriculture, according to NAB’s July Rural Commodities Wrap released.
The NAB Rural Commodities Index is now 9.6% higher than this time in 2020, increasing 0.8% month-on-month from May to June.
NAB Agribusiness Economist, Phin Ziebell, said the emergence of the COVID-19 Delta variant and the associated uncertainty had seen the US Dollar (USD) continue its appreciation.
“This has left the Australian Dollar (AUD) in the mid-70s rather than at USD0.80 as we previously envisaged,” Mr Ziebell said.
“We now see the AUD at USD0.78 at the end of 2021 and USD0.80 through 2022.
“Of course, this is largely a good news story for Australian agriculture, as all things being equal, a lower currency pushes up the value of local commodity prices. However, with the AUD losses being so driven by USD strength, the cross rates may not see the same improvement.
“Beyond being a major health and community challenge, the economic consequences of the COVID-19 Delta variant for agriculture will be labour and equipment issues with state border closures as well as lower food service demand, particularly in Sydney.”
Mr Ziebell said despite the ongoing COVID-19 challenges, commodity prices continued to rise, with cattle the standout performer.
“The Eastern Young Cattle Indicator (EYCI) continues an absolutely incredible run, smashing the 1000c/kg mark this month,” Mr Ziebell said.
“While prices have clearly exceeded our forecasts, we are more concerned than ever that domestic prices – which are driven almost entirely by restocker interest – are unsustainable.
“Importantly, they do not reflect trends in global markets and will be a challenge for processors. But for those who have been able to hold stock through the drought, it’s happy days.”
Mr Ziebell said seasonal conditions were close to perfect for the winter crop, with the main problem being waterlogging more than anything else.
“The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) June crop report points to 27.8 million tonnes of wheat this season, but it is highly likely that there will be further upward revisions,” Mr Ziebell said.
“Global price sentiment remains strong, reflecting strong demand and supply challenges in a number of growing regions. Domestic wheat futures have dropped a little recently, with Australian grain now very well priced into South-East Asia.
“Canola continues to be an absolute stand-out, supported by a big rally in global oil seeds, reflecting labour shortages in palm oil plantations in COVID-hit Malaysia and extreme heat in Canada.
“Barley prices remain subdued, but there has likely been substitution into other crops this season.”
Click here to download the NAB July Rural Commodities Wrap (PDF).