Our NAB Rural Commodities Index dropped 0.7% in April and a further 3.4% in May. The index is now 25.2% below year-ago levels.

Cattle prices continue drive the index lower. The benchmark EYCI now stands at less than half its early 2022 peak. Lamb markets have also fallen, although somewhat less precipitously than cattle. Drier conditions in Queensland combined with constrained processor capacity have heaped pressure on the cattle market. Expectations of further dry weather to come have only added downside risk.

Climatic conditions have been mixed: while much of the continent is drying out, storm activity across Victoria, south-east South Australia and western NSW has seen above average soil moisture. The WA wheatbelt is also generally wetter than average.

However, El Nino is approaching, if not already underway. NOAA has already declared an El Nino event, while the BoM is currently on El Nino alert, indicating a 70% chance of an event forming in coming months. El Nino typically associated with hotter and drier spring-summer conditions across eastern and northern Australia.

We have again amended our rate call in response to RBA rate rises in May and June and now expect the cash rate to peak at 4.6% in coming months. The AUD has been higher recently, following lows last month. We see the AUD reaching 72 US cents at end-2023 and 73c at end-2024.

For further details, see the NAB Rural Commodities Wrap June 2023