NAB Rural Commodities Wrap: July 2017

Price update

• Overall, the NAB Rural Commodities Index was unchanged in June, reflecting much better grain prices (as a result of dry US weather and concerns around Australian supplies amid a very dry start to winter) and decent dairy auction results, offset by generally poorer livestock prices and weakness in sugar and cotton. Dry conditions are starting to affect young cattle prices, with the Eastern Young Cattle Indicator now lower than the same time last year.
• At the state level, New South Wales was up 0.2% while dairy-heavy Victoria rose 0.6%. Queensland with its large cattle industry was off 2.1%. Grain-dependent Western Australia was the best performer – up 2.5% while South Australia rose 1.2%. Tasmania saw prices rise 0.4%.

Outlook for prices

• The outlook for the coming year is highly dependent on the course of the Australian dollar, although we still expect the AUD to fall to 70 US cents at the end of 2017, providing some upside towards the end of the year. We see the 70 cent mark as a low point for the AUD, with the currency to remain around that level well into 2018.
• Weather will continue to be a key driver of livestock prices. Drier weather is already denting cattle and lamb prices. If these conditions continue we expect to see further downside, especially for cattle. The Bureau of Meteorology forecasts dry conditions to continue in south eastern and south western Australia.

Outlook for production

• Rainfall (or more accurately the lack of it) is the major issue for production this year. This month we have released our initial wheat production forecast at 23.3 million tonnes. If it stays dry we expect further downside risks to this outlook. Dairy production could come under pressure if pasture growth is below average
• Conversely, dry conditions have already seen an uptick in cattle slaughter. If it remains dry, production is likely to be higher for some months before declining again.

For further details, please see the attached report.

• NAB Rural Commodities Wrap: July 2017 (PDF, 2MB)