Below trend growth to continue
Australian agricultural commodity prices retreated on average last month, with the NAB Rural Commodities Index down 2.6% m/m in November.
Prices are now around the same time as they were in November 2021 (just 0.2% higher) as the big run-up earlier this year subsides.
The global economic outlook continues to be a major challenge to many commodities. While agriculture had been spared the downsides until recently owing to tight global supply., volatility has continued to increase and some commodities are now facing a more challenging price picture in 2023. That said, overall prices remain well above pre-covid levels and many producers are seeing their most profitable period in living memory.
Livestock and grain market volatility sits at the heart of the recent Rural Commodities Index changes. Wheat saw a big runup coming into spring, but this has now fallen away as markets weight global geopolitical events, USD weakness, an uncertain supply and stocks picture and – domestically – a big Australian crop. ABARES data puts this season’s wheat harvest at the biggest on record, despite destructive flooding across parts of eastern Australia.
Cattle markets have seen a sharp decline recently as feedlots and processors eased buying in a market with very strong young cattle supply and more challenging US beef conditions. Further volatility likely awaits producers in 2023.
Another emerging trend worth flagging is the potential for 2023 to be a good deal drier than 2020, 2021 and 2022. The BoM sees an average to slightly wetter than average first three months of the year (except in parts of SA which could see quite dry conditions) but with ENSO models pointing to neutral and then closer to El Nino towards winter, we could well see a drier winter-spring period. While this is of course speculative, producers should be prepared for the three year La Nina anomaly to end sooner rather than later.
For further details, see the NAB Rural Commodities Wrap Dec 22
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