NAB Rural Commodities Wrap: March 2017

The NAB Rural Commodities Index is an index of 28 agricultural commodities weighted by the relative size of each commodity in the Australian agricultural sector.

By

Key points:

  • The outlook for the coming year is highly dependent on the course of the Australian dollar, although we still expect the AUD to fall to 70 US cents at the end of 2017, providing some upside towards the end of the year. We see the 70 cent mark as a low point for the AUD, with the currency to remain around that level well into 2018.
  • We continue to expect cattle prices to fall further in 2017. While we have already seen some contraction in saleyard prices, restocker interest could slow rapidly if conditions are dry over winter-spring as major export markets show a generally subdued pricing outlook. Our forecasts point to the EYCI falling to 500 AUc/kg in the September quarter 2017. This is an approximately 30% contraction from peak.
  • The outlook for production is somewhat mixed. While winter crops had a generally spectacular season, with a record 35 million tonnes of wheat harvested, the much drier outlook for the coming year is likely to see downward pressure in the 2017-18 season. Latest modelling from the Bureau of Meteorology points to El Niño by winter.
  • ABARES forecasts point to lower production for major proteins in 2016-17. While lower beef and sheepmeat production reflects the need to rebuild herds and flocks, low prices are the primary driver for lower milk production. Without further upside in farmgate prices, it is likely that dairy production will continue to lag.
  • The NAB Rural Commodities Index is an index of 28 agricultural commodities weighted by the relative size of each commodity in the Australian agricultural sector. In addition to the national indicator, we publish state-level indicators, reflecting the particular composition for each state.  Overall, the index rose 0.1% in February but is on track to fall 1.5% in March (excluding horticulture).

For further details, please see the attached report.