NAB Rural Commodities Wrap: October 2020

Overview

• The year from hell rolls on, but Australian agriculture is probably in the best shape since 2016, reflecting good seasonal conditions and largely encouraging price trends.
• The Bureau of Meteorology declared La Nina in late September and the implications for the coming summer are potentially substantial. La Nina is generally associated with above average spring-summer rainfall in eastern and northern Australia, and conversely below average rainfall in the western Americas. The period 2010-12 saw a great improvement in Australian crop yields but also summer flooding. 2016 did not quite meet the bureau’s La Nina thresholds but still saw the biggest Australian winter crop on record. This season, we expect an Australian wheat crop in excess of 28 million tonnes – the biggest crop since the 2016 record.
• La Nina can lead to below average yields in the Americas, which may see upward pressure on prices. While global wheat prices have now risen to six-year highs, these have largely been driven by dryness in Russia.
• Cattle prices remain at record highs while lamb has staged a recovery to year-ago levels. Meanwhile, Global Dairy Trade auction results have been more encouraging recently.
• Overall, the NAB Rural Commodities Index fell 1.6% month-on-month in September, but was still up 5.8% year-on-year. All in all,  a large section of Australian agriculture looks set to chalk 2020 up as a pretty good year. Given the conditions facing the rest of the Australian and global economies, this is a remarkable achievement.
• Trade concerns with China remain an issue, with cotton recently reported to be in the firing line via instructions for Chinese mills not to purchase Australian cotton. It remains to be seen whether these tensions will be de-escalated.

For further details, see the NAB Rural Commodities Wrap October 2020.