NAB Rural Commodities Wrap: April 2020

Rural commodities continue to climb.

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Our podcast series continues this month, with NAB Group Chief Economist Alan Oster joining us to discuss the latest developments in the Australian economy and the performance of Australian agriculture. Listen now.

The COVID-19 pandemic continues to demolish the global economy, but the situation for Australian agriculture looks very positive overall, although with a few key risks looming. Our Rural Commodities Index was up another 5.8% in March. Here are some major positives for Australian agriculture:

  • Seasonal conditions are looking very good indeed. The first three months of 2020 saw big rains in most, but not all, parts of the country. The three month BoM outlook points to well above average rainfall for the next three months as well, although outlook reliability is always an issue in autumn.
  • The AUD is low, now trading in the low 60s range, having spent some time with a 5 in front of it recently. A year ago, the AUD was around 71 cents. This is a welcome boost to local prices.
  • Demand for staples is high (ask anyone trying to buy flour at present). While most hoarding is likely to be transient, there is a move from some grain exporters to secure more supplies domestically.

As for the not so positives:

  • Global supply chains are under massive pressure. This manifested itself earlier in the crisis with the Chinese ban on seafood imports. It is hard to predict what will happen to supply chains in the coming months.
  • The global economy is in a sharp downturn. Demand for premium products could well suffer as consumers simply don’t have cash to spend. Demand for fibres is likely to be low this year.
  • Access to labour and risk of outbreak is likely to be a major concern for labour intensive parts of agriculture, such as horticulture, dairy processing and abattoirs.

For further details, see the NAB Rural Commodities Wrap April 2020