NAB Rural Commodities Wrap: May 2020

Our podcast series continues this month, with NAB Group Chief Economist Alan Oster joining us to discuss the latest developments in the Australian economy and the performance of Australian agriculture. Listen now.

• The coronavirus crisis rolls on around the world and while Australia has been fortunate enough to avoid a major outbreak (at least so far), restrictions on activity and consumer caution suggest we are in the midst of a sharp economic downturn.
• As we outlined last month, the impact of the virus on Australian agriculture is likely to be much lower than for most other parts of the economy, although some sectors are likely to fare much better than others. So far, grain prices have been buoyed by stockpiling, while livestock prices have pulled back on uncertain export market demand and wool has absolutely tanked. Stapes are likely to remain more resilient than high value premium produce as restaurants remain closed and consumer spending remains sluggish.
• Overall, the NAB Rural Commodities Index fell 2.5% month on month in April, largely reflecting lower beef and lamb prices (although with EYCI and NTLI on hold we are using alternative measures) and a collapse in wool. Grains were generally higher though. On a year on year basis, the index is still up 14.1%.
• The AUD had fallen precipitously earlier this year, trading with a 5 in front of it during parts of March. It is now back in the mid-60s range, taking out some of the spike that could have accrued to local prices if it had remained low. We now see the AUD back to the 70 US cent mark by mid-2021.
• There has been a marked deterioration in Australia’s agricultural trade relationship with China this week amid Chinese Government threats to impose large anti-dumping tariffs on Australian barley, compounded yesterday by a ban on meat imports from four Australian processors. This is clearly a rapidly developing situation and bears close watching.

For further details, see the NAB Rural Commodities Wrap May 2020