Rural Commodities Wrap – March 2012

The NAB Rural Commodities Wrap focuses on some of the key economic activity that occurred in the Agribusiness sector during the month.

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The NAB Rural Commodities Wrap focuses on some of the key economic activity that occurred in the Agribusiness sector during the month.

Agricultural commodity prices easing on AUD strength, improving global production prospects

  • Cattle prices easing back through early 2012 but have stabilised somewhat in March
  • Prices to weaken further in 2012 but to be supported to a large extent by a very tight global market

Global financial markets stabilised somewhat in early 2012 in the wake of the European Central Bank’s LTRO operations. While helping bank liquidity, the pace of global economic growth has slowed further – reflecting the lagged impact of higher rates in developing economies, financial market volatility and the emerging European recession. For commodity markets, this has seen fairly mixed results over the past month. Energy prices have remained relatively high due to supply squeezes while bulk commodities and metals are a little weaker on softening Chinese economic data. For agricultural commodities, the last month has been fairly mixed in global markets, although broadly speaking, prices in USD are generally a little higher.

While risks over the global economy have fallen in the last few months, the latest business surveys have been less optimistic than expected. Business confidence in the industrial sectors of the advanced economies picked up in early 2012 but then fell in February to a level consistent with very slow output growth. The pace of growth in global industrial output slowed to around 2 per cent in early 2012, with the slowing quite widespread across the advanced economies. Euro-zone activity continued to contract, although at a less subdued pace than in late 2011. Elsewhere, recent surveys show that conditions have slowed and remain very sluggish.

In the US, estimates of economic growth at the end of 2011 have been revised up and while annualised quarterly growth accelerated through 2011, the pace of expansion now seems set to slow. There are several reasons for this but one notable one is the switch towards tighter fiscal policy as the US finally starts to address its very large government deficit. In the Eurozone, fourth quarter national accounts have confirmed that the economy is moving into recession and we expect the economy to continue to contract for the next two quarters. In Japan, GDP fell at the end of 2011 as Thai flood related disruption hit East Asian supply lines and the tsunami reconstruction effort is yet to be realised. The outlook for private demand remains weak with growth prospects tied to net exports and the reconstruction effort. In China, growth eased and we expect recent slowing to continue as the economy experiences a soft landing.

For further analysis download the full report.

Rural Commodities Wrap March 2012