NAB Rural Commodities Wrap: February 2021

Australian agriculture set for solid year.

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Overview

• Despite the global challenges of 2020, Australian agriculture had a generally very good run, driven by strong prices for many (but not all) commodities and much better seasonal conditions. While trade issues with China hurt some sectors, the reality is that Australian agriculture is in its strongest position in years.

• But what will 2021 deliver? Overall our sense is that 2021 should bring another solid year for many, although it is likely that an appreciating AUD and frothy livestock prices will see some downwards pressure on the NAB Rural Commodities Index in the back half of 2021. This should however be seen in context: cattle prices are currently at record highs and the Rural Commodities Index hit a record in April last year (although has since fallen somewhat). Prices for most commodities (with some exceptions) should be supportive of good producer returns throughout 2021.

• Chinese trade barriers were a feature of 2020 and their continuation, escalation or de-escalation is a key question for Australian farmers in 2021.

• Seasonal conditions have been generally wetter than average in the south-east as well as northern Australia, reflecting the La Nina we entered last year. However, large areas of Queensland remain drier than average, as does much of Western Australia. The Bureau of Meteorology expects the La Nina to continue to weaken, although the seasonal outlook for the next three months is wetter than average.

• Overall, the NAB Rural Commodities Index fell 1.7% in December 2020 but rose 4.2% in January 2021 on a month-on-month basis. The index is now 7.3% higher than the same time last year.

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