La Nina to drive surging cattle and grain prices
With a La Nina weather event officially confirmed, the forecast of a wet summer for eastern and northern Australia could send soaring cattle and grain prices higher according to NAB.
The bank’s latest report, released today, revealed the NAB Rural Commodities Index is now almost 20 per cent higher than the same time last year on the back of strong cattle and grain prices.
The report’s author, NAB senior agribusiness economist Phin Ziebell, said Australia remained on track for a “monster winter crop”, despite November rain causing harvest delays and potential quality downgrades in some areas.
“Grain prices are once again on the rise, reflecting a lower Australian Dollar and most importantly, strong global price action,” he said.
“Harvest prices are likely to substantially exceed what was expected just a few months ago.
“Last month, we upgraded our December quarter wheat price forecast from $350/tonne to $375/t. If the current global rally persists, this should reach Australian prices.”
Mr Ziebell said canola had pulled back somewhat from its earlier rally, which saw prices close to $1000/t at the Port of Newcastle.
Despite that, he said producers should expect excellent returns this season.
“The cotton price rally rolls on, which is great news for growers after challenging times in 2018 and 2019,” Mr Ziebell said.
“In AUD terms cotton has averaged over $850 per bale for November to date, the highest in a decade.
“Seasonal conditions are excellent, reflecting replenished storages and good dryland performance.
“Latest forecasts from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) suggest that Australian cotton lint production will almost equal 2017-18 and be the third highest on record.”
Australian cattle producers, who have been enjoying record prices in 2021, were told to expect further increases in the wake of the La Nina weather event.
Harvest prices are likely to substantially exceed what was expected just a few months ago.
Mr Ziebell said a wet summer could see restocker demand push the Eastern Young Cattle Indicator – which last week broke past 11000¢/kg for the first time – even higher.
“Our view remains that fundamentals do not support prices anywhere near these levels if weather conditions return to drier than average,” he said.
“Ultimately, prices remain out of step with trends in global markets and at some point, Australian markets will need to adjust accordingly.”
There was good news for dairy farmers, with global dairy trade auction results having returned to positive territory.
“The last three auctions have seen the index move higher in USD terms and a lower AUD has boosted this impact,” Mr Ziebell said.
“Overall, global markets continue to offer good support to already strong farmgate prices.”
Despite a mostly positive outlook for Australian agriculture, rising input prices are expected to keep surging.
Mr Ziebell said input prices had risen again in November, with oil and gas markets the key driver of upward pressure.
“This points to even higher Australian input prices, particularly fuel and fertiliser, in coming months,” he said.
“The AUD is back down to US72¢, in line with our forecast for around US72¢ at year-end.
“We see some limited upside next year, but for the moment 70-75¢ seems to be a reasonable range.”
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