NAB Rural Commodities Wrap: Australian ag in strongest position ‘in years’
Economists are buoyant about ag’s prospects for 2021 — but “good returns” forecast for commodities including grains may be tempered by a rising Australian dollar.
IMPROVED seasonal conditions have put Australian agriculture in its strongest position in years, and farmers can continue to expect “good returns” this year, says the National Australia Bank.
But the bank has tempered the positive news with forecasts of an appreciating Australian dollar that could see some downward pressure on prices industry-wide towards the end of the year.
In the bank’s February Rural Commodities Wrap, senior agricultural economist Phin Ziebell said prices for most commodities and improved seasonal conditions in many regions should be supportive of good producer returns throughout the year.
“Underpinning our 2021 forecasts is the Australian-dollar forecast track, which points to the Australian dollar climbing to $US0.80 by mid-year and $US0.83 by the end of 2021,” Mr Ziebell said.
“This currency appreciation will likely put some pressure on rural commodity values, with cattle prices likely to be a major driver of this unwinding.
“The Eastern Young Cattle Indicator is now approaching 900c/kg. While it is possible that prices will continue to move higher if Queensland rains deliver, local prices are now out of step with global fundamentals, particularly in light of an appreciating Australian dollar.”
Mr Ziebell said it was not unusual for Australian prices to be out of kilter with global benchmarks during times of herd rebuilding, but farmers faced significant risk if demand petered out.
A global grain price rally has allowed Australian growers to enjoy reasonable prices. Strong buying activity from Saudi Arabia has alleviated much of the need to find a replacement home for a huge crop following China’s imposition of 80 per cent tariffs.
Global grain prices have remained elevated but have been counterbalanced by a higher Australian dollar. Mr Ziebell said this added up to a forecast for Australian wheat in the low $300 a tonne range, “a respectable price especially factoring in good to excellent yields in the recent harvest”.
NAB’s fertiliser index rose 8.8 per cent last month and the feedgrain price index has shown signs of recovery this year following a downward trend last year.
LAMB
Prices moved out of sync with their usual seasonal patterns last year, rising during the spring flush. Further gains have been made this year, with trade lamb above levels of a year ago, but the bank sees lamb values as “essentially maxed-out” at 2020’s peak.
WOOL
Prices have recovered somewhat from their low in September last year, but recovery has been slower for finer wools below 20 microns. The extent to which office workers return post-pandemic and the clothes they wear will be of great interest to the sector, the banks says.
DAIRY
NAB’s dairy export price indicator moved 4.9 per cent higher in Australian-dollar terms in January — encouraging news for the sector.
HORTICULTURE
Fruit prices gained 6.6 per cent while vegetables fell 3 per cent in January. Labour availability continues to be of concern to the sector, leaving some unable to harvest their crops.
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