Russia’s invasion of Ukraine a month ago has sent shockwaves through agricultural commodity markets across the globe. Grains, fertiliser and oil prices have all seen substantial increases (as well as volatility), as a result, with considerable uncertainty over production at risk in Ukraine. While western sanctions do not extend to Russian agricultural products, the old commodity trading routes of the Cold War are being re-established.

Farm inputs prices are a mounting concern for 2022. Fertiliser has seen a sustained uplift since the onset of the pandemic and the war in Ukraine has only exacerbated the challenges. Meanwhile, diesel has exceeded $2.20/l in some areas.

Meanwhile, the La Nina event that began last November continues, with the earlier weakening stalling in March. The event has seen destructive storms across parts of Queensland and New South Wales, as well as high rainfall in some agricultural districts. Meanwhile, other regions remain drier than average. Much of northern Queensland and the Northern Territory is abnormally dry. Given the traditional start to the winter cropping seasons is just a month away, producers in some southern regions are looking for more rain.

The NAB Rural Commodities Index ticked up another 0.9% on a monthly basis in February – its eleventh consecutive gain to another record high. Our latest partial data for March points to a roughly 2% gain in the month. The index is now over 20% higher than the same time in 2021.

The AUD has risen to the mid-70s range, as higher commodity prices muscle out risk-off effects. We see the currency reaching around 77c at the end of the year. Inflation is a rising concern, although is yet to hit Australia to the same extent as some other countries. We now expect the RBA to start raising the cash rate in August 2022.

For further details, see the Rural commodities wrap March 2022