NAB Rural Commodities Wrap: October 2021

The good news just keeps rolling on for Australian agriculture, with already very good seasonal conditions boosted by the increasing possibility of a La Nina event, combined with ongoing commodity price strength.

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Overview

The Bureau of Meteorology’s latest ENSO outlook has now moved to a 70% chance of a La Nina event developing this year. La Nina is associated with above average spring-summer rainfall in eastern and northern Australia. This could drive even steeper cattle prices and a big grain harvest (albeit potentially at the expense of quality). The Bureau of Meteorology continues to forecast a wetter than average end to spring and summer for most of the country except Western Australia.

Overall, the NAB Rural Commodities Index was up 1.1% in September and 0.9% in October (to date) on a month-on-month basis, excluding horticulture. The index is now 18.9% above the same time in 2020. We continue to see record highs for our index although with cattle and grain prices so strong, this is not surprising.

Input prices continue to surge, largely reflecting ongoing strength in oil prices following a pandemic-induced slump, as well as elevated gas demand across Europe and Asia. The onset of the pandemic destroyed oil demand and saw production pull back accordingly. Now demand has returned but supply (particularly in US shale), continues to lag. Gas markets are even more constrained amid supply chain issues in Europe. This points to even higher Australian input prices (particularly fuel and fertiliser), in coming months.

The AUD has underperformed this year, but has recently risen back above 75c. We see the currency at around 72c at year-end.

For further details, see the NAB Rural Commodities Wrap October 2021