A lower than expected Australian dollar combined with good seasonal conditions continue to support the outlook for Australian agriculture, according to NAB’s July Rural Commodities Wrap released today.
The NAB Rural Commodities Index is now 9.6% higher than this period in 2020, increasing 0.8% month over month from May to June.
NAB agri-food economist Phin Ziebell said the emergence of the COVID-19 Delta variant and the associated uncertainty saw the US dollar (USD) continue to appreciate.
“This left the Australian dollar (AUD) in the mid-1970s rather than at $ 0.80 as we previously envisioned,” Ziebell said.
âWe now see the AUD at $ 0.78 at the end of 2021 and at $ 0.80 through 2022.
âOf course, this is largely good news for Australian agriculture, because all things being equal, a weaker currency pushes up the value of local commodity prices. However, with the AUD losses being so driven by the strength of the USD, cross rates might not see the same improvement.
âBeyond being a major health and community challenge, the economic consequences of the COVID-19 Delta variant for agriculture will be labor and equipment issues with the border closures of government as well as a drop in demand for food services, particularly in Sydney. â
Mr Ziebell said that despite the current challenges of COVID-19, commodity prices have continued to rise, with cattle performing the best.
âThe Eastern Young Cattle Indicator (EYCI) continues an absolutely incredible race, breaking the 1000c / kg mark this month,â said Ziebell.
âWhile prices have clearly exceeded our expectations, we are more concerned than ever that domestic prices – which are almost entirely driven by interest in restocking – are not sustainable.
âIt is important to note that they do not reflect global market trends and will be a challenge for processors. But for those who were able to keep stocks during the drought, these are happy days.
Mr Ziebell said seasonal conditions were almost perfect for the winter harvest, with the main problem being waterlogging more than anything else.
“The Australian Bureau of Agricultural Economics and Resources (ABARES) June harvest report shows 27.8 million tonnes of wheat this season, but it is highly likely that there will be further revisions. on the rise, âZiebell said.
âGlobal price sentiment remains strong, reflecting demand and supply challenges in a number of growing regions. Domestic wheat futures have fallen slightly recently, with Australian grains now selling very well in South East Asia.
âCanola continues to stand out, supported by a strong recovery in global oilseeds, reflecting labor shortages in palm oil plantations in Malaysia affected by COVID and extreme heat in Canada.
“Barley prices remain low, but there has likely been substitution by other crops this season.”
Source: NAB. Click here to download the NAB July Rural Commodities Wrap (PDF).