NAB Rural Commodities Wrap: February 2022

As agriculture’s record run continues, what’s ahead for 2022.

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The new year has been kind (to mostly kind), to Australian agriculture overall. Prices are mostly very strong and seasonal conditions are wetter than average.

The La Nina event, underway since last November, is now at or near its peak, bringing monsoonal conditions to Victoria, South Australia and New South Wales. While central Queensland has been much drier than average recently, the seasonal picture continues to put a floor under already hot livestock prices. Consistent with a La Nina event, Western Australia has experienced a drier than average summer. While the three-month outlook for autumn remains average to wetter than average across most areas, it will be difficult to see a season as good as the previous two record-breakers. This has potential implications for grain production and livestock prices.

The NAB Rural Commodities Index ticked up another 0.7% on a monthly basis in January – its tenth consecutive gain to another record high. The index is now 22% higher than the same time in 2021.

Rising oil and gas prices continue to affect farm inputs, notably fertiliser. While USD denominated DAP and urea prices eased a little in January, they are up 273% and 311% respectively since the beginning of the pandemic in January 2020. This is clearly a global challenge and could have broader implications for crop production and profitability in 2022.

The AUD is trading at around 70 US cents, having briefly broken below 70 late last month. Expectations of imminent US rate rises, geopolitical concerns (notably Ukraine) and a general lack of risk sentiment amid equity market weakness, have boosted the USD. We now see the RBA hiking rates in November this year, with follow-ups in December 2022 and February 2023, taking the cash rate to 0.75% in just over a year’s time.

 

For further details, see the Rural commodities wrap February 2022