NAB Rural Commodities Wrap: October 2019
Wheat crop cops sharp downgrade amid tough spring.
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- Seasonal conditions have very clearly been – and remain – poor in much of New South Wales and Queensland. Conditions had been much better in southern Australia, but spring has been generally unkind, reflecting a lack of rain combined with heat and frost. This has led us to significantly downgrade our assessment for the wheat crop this month, with a 15.5 million tonne headline figure now a serious prospect.
- Despite the weakening conditions, livestock markets remain resilient, particularly for lamb. The National Trade Lamb Indicator stands at $8/kg – an exceptional figure, especially during spring. It is looking increasingly unlikely that the lamb market will see a “traditional” spring flush this year. The restocker cattle market remains soft, but demand for beef in export markets is strong. ABARES reports year to September Australian beef exports to China up 4% y/y.
- Water availability will remain a key risk coming into summer in many areas, both dryland and irrigated. Irrigation allocations in the Murray-Darling basin are generally very low and temporary water prices have responded accordingly. While 2019 has been a particularly challenging year, the increase in permanent plantings (almonds, citrus, table grapes etc) in the basin is likely to have a structural impact on water prices.
- Overall, the NAB Rural Commodities Index fell 2.9% in September, reflecting weakness in fruit, beef, wool, sugar and lamb prices, only partially offset by upward pressure in grains.
For further details, please see the NAB Rural Commodities Wrap October 2019.