NAB Rural Commodities Wrap: June 2022

Since last month’s wrap, we have seen further gains in most agricultural commodity prices, tentative signs of a stabilisation in fertiliser prices, combined with a lower AUD and a weakening global growth outlook.

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The 2021-22 La Nina event is now officially over, having persisted much later into autumn than might have been expected. This event delivered big rains into large areas of eastern Australia, boosting storages, but also causing destructive flooding across large areas of New South Wales and Queensland. But most importantly, four out of seven models surveyed by the Bureau of Meteorology point to another La Nina developing in spring. The BoM is now on La Nina watch, predicting a roughly 50% chance of La Nina this spring. If this occurs, there is probably further upside for the already big Australian grain crop, but downside for already stretched global production.

Meanwhile, central bank hawkishness continues despite mounting signs of weaker economic expectations. The RBA hiked rates 50 basis points last meeting and we expect a further two 50bp hikes over the next two months. The Fed has been even more hawkish, hiking 75bp last meeting – the steepest rise since the mid-90s. There is a real risk of central bank overshoot. The AUD has been hovering below 70 US cents recently. We see more time below 70 in the second half of the year.

The NAB Rural Commodities Index gained 4.2% m/m in May, the strongest rise since early 2021. Partial data for June puts the index up around 0.6%, but this excludes horticulture, which is likely to rise further.

For further details, see the Rural commodities wrap June 2022