NAB Rural Commodities Wrap: August 2021

NAB Rural Commodities Index hits a record high sitting 12.6% above August 2020 levels.

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Overview

Good news continues for Australian agriculture this year, with generally excellent seasonal conditions and another month of strong commodity prices. While the ENSO outlook remains neutral, some models are now tending towards La Nina, backing in the prospect of a wetter than average spring in the east of the country. This suggests that a record grain harvest is clearly in frame.

Meanwhile, commodity prices continue to strengthen. Overall, the NAB Rural Commodities Index was up 2.0% month-on-month in July. The index is now 12.6% above the same time in 2020. This result is a record high for our index, which began in January 2010.

The Eastern Young Cattle Indicator (EYCI) broke through the $10 barrier around a month ago – an extraordinary (and probably unsustainable) result. The wet spring outlook could even see upside for cattle prices, but we continue to see this market as substantially overheated.

Grain prices have jumped again this month, reflecting an ongoing rally in global markets. Canola prices are looking particularly impressive. We now see Australian wheat prices around the $350/t mark in the December quarter, having previously expected prices in the low $300s range.

The Australian dollar continues to underperform, dipping below 72 US cents last week. This reflects lower global risk sentiment amid delta surges, a stronger USD, China growth questions and Australian lockdowns. While some commodities have come off (notably iron ore), commodity prices suggest an AUD recovery later this year. Still, a lower AUD is good news for agricultural commodities, albeit a challenge for input costs.

This month’s in focus looks at the economic implications of extended lockdowns as a result of delta outbreaks.

For further details, see the NAB Rural Commodities Wrap August 2021