Rural Commodities Wrap – November 2014

General Manager of NAB Agribusiness, Khan Horne says the falling Australian dollar is a real boost for agriculture, and combined with the recent announcement of the China–Australia Free Trade Agreement, conditions for 2015 are looking positive for agricultural exporters.

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AUD on the way down: NAB

National Australia Bank (NAB) has revised down its currency forecasts and expects the Australian dollar (AUD) to enter the New Year as low 85-86 US cents, according to the November Rural Commodities Wrap, which also provides an outlook for prices in 2015.

General Manager of NAB Agribusiness, Khan Horne said the AUD is reaching levels not expected to be seen until 2015 due to the continued strength of the US dollar (USD).

“We have also revised the forecast low point for the AUD from 80 US cents to 78 US cents, which we expect to see in 2016.

“The lower AUD has been driven in large part by an appreciating USD, combined with falling terms of trade, and more recently, an unexpected decision by the Bank of Japan to further ease policy. This has lent some support to Australian export prices for wheat and dairy since late September.

“The falling AUD is a real boost for agriculture, and combined with the recent announcement of the China – Australia Free Trade Agreement, conditions for 2015 are looking positive for agricultural exporters,” said Mr Horne.

“Looking at commodity price outlooks, beef is the standout for 2015, with prices expected to increase 7.7 per cent on 2014 levels. Prices for other commodities are anticipated to ease on the back of poor seasonal outlooks and easing global prices,” he said.

Price premiums for wheat are expected to be supported coming into summer due to likely higher local feed grain demand resulting from disappointing spring pasture growth in many areas.

The RBA kept the cash rate at 2.5 per cent in November as expected, and unchanged for 15 months.

“We still don’t anticipate any change in the cash rate until the end of 2015. While there are tentative signs of an improvement in household spending, this does not yet signal a sustained change in household and business conditions.

“In the absence of any major surprises, the cash rate is unlikely to rise until late next year as monetary policy commences its return journey to normality.

The NAB Rural Commodities Index was down only 0.6 per cent in AUD terms in October, as a falling AUD offset the effects of falling international commodity prices. In USD terms, the index was off a more substantial 3.7 per cent, falling for a sixth straight month.

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