NAB Rural Commodities Wrap: July 2021

Lower currency continues to buoy Australian agriculture.

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Overview

Things just keep getting better and better for Australian agriculture this year. Seasonal conditions are looking better and better, raising hopes for a second bumper crop in a row. The three month seasonal outlook from the Bureau of Meteorology points to a potentially very wet spring in the eastern states.

Meanwhile, commodity prices continue to perform. Cattle is the standout performer, with the Eastern Young Cattle Indicator (EYCI) smashing the $10 mark this month – an extraordinary (and probably unsustainable) result. Grain continues to look good, reflecting supportive global dynamics.

Overall, the NAB Rural Commodities Index was up 0.8% month-on-month in June. The index is now 9.8% above the same time in 2020.

It is fair to say that the Australian dollar has underperformed our expectations recently, reflecting USD strength that started with the June Federal Reserve FOMC meeting and continued with the rise of the COVID-19 delta variant (which is considered at least twice as infectious as the original Wuhan strain). We still see a higher AUD in the back end of 2021 and into 2022, but now do not see 90 US cents until next year.

The delta variant has caused major challenges in Australia. All states and territories (except Tasmania and the ACT) have seen lockdowns of varying lengths since late May. The situation in New South Wales is most concerning, with cases still rising after a month long lockdown. Beyond being a major health and community challenge, there will be economic consequences. At this stage the main challenge for agriculture will be labour and equipment issues with state border closures as well as lower food service demand, particularly in Sydney.

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