While the weaker global economic outlook has materially dented demand for many non-energy bulk commodities, agriculture continues to see generally elevated prices as buyers weigh seasonal and geopolitical uncertainty.

Our index was up 1.0% in September and a further 1.1% in October, following a sharp 8.0% drop in July and a further 1.7% fall in August. Much of the recent increase has been driven by higher wheat and cattle prices, offsetting falls in cotton, fruit and vegetables.

Seasonal conditions have been generally very supportive this year, with a big winter crop just around the corner. However, floods across parts of eastern Australia (particularly Victoria, Tasmania and Southern New South Wales) have destroyed previously good crops for some growers. More wet weather is forecast across eastern Australia coming into summer, increasingly the risk of further crop quality downgrades. Meanwhile, the third La Nina in a row rolls on, although the event is likely to break down early in 2023.

While prices and yields continue to outperform, input costs and market volatility remain a challenge. Volatility is likely to persist and perhaps even increase in 2023.

We continue to see a rapid normalisation (i.e. increase) in global and domestic monetary policy. The Federal reserve has now hiked by 75 basis points for the last four meetings in a row, while the RBA recently raised rates another 25 basis points to 2.85%. This materially weakens the global economic outlook for 2023. We expect the Fed Funds Rate to peak at around 5% by March 2023, while our RBA track sees the cash rate topping out at 3.6%. The AUD remains choppy amid global economic uncertainty – we see the currency closing out the year at around 65 US cents, with some upside in the new year.

For further details, see the NAB Rural Commodities Wrap Nov 22