Rural Commodities Wrap – April 2012

The NAB Rural Commodities Wrap focuses on some of the key economic activity that occurred in the Agribusiness sector during […]


The NAB Rural Commodities Wrap focuses on some of the key economic activity that occurred in the Agribusiness sector during the month.

  • Global agricultural commodity prices under pressure from resumption of ‘risk-off’ attitude pervading financial markets
  • Australian wheat crop of 26.1 million tonnes predicted on good subsoil moisture, but acreage lost to canola
  • Wheat prices face near-term uncertainty on weather, financial market volatility

A ‘risk-off’ attitude appears to have crept back into financial markets over recent weeks, after a seemingly stable start to 2012. Initial market concerns were largely driven by Chinese GDP growth slowing to 8.1 per cent year-on-year, while some US economic data releases suggest that recovery may not be as smooth as markets were initially anticipating. The real catalyst for market sentiment however was Spain, as fears began to mount that Spain will struggle to reign in its budget deficit. While Spain appears to be addressing its real estate issues with the banks and has managed to raise short-term funding relatively easily, a number of underlying issues remain. In all, commodity prices are generally down on a few weeks ago with the growth commodities again being hardest hit.

In terms of the real economy, the volume of world trade and industrial output has started to recover again after levelling out through the latter half of last year. World trade was up 0.6 per cent in the three months ended January and industrial output was 0.9 per cent higher. Industrial output in the big developed economies is still well below its early 2008 level whereas it has risen considerably in the emerging economies. Business surveys show that confidence in the industrial sector across the advanced economies fell sharply through 2011 as the rate of growth in industrial output slipped from around 7.5 per cent year-on-year at the start of the year to only 2 per cent towards the end. Sentiment has, however, stabilised since late 2011, suggesting that the slowdown could be about to end.

Business conditions vary considerably across the large developed economies. Euro-zone sentiment turned down in March, with indicators suggesting it will be difficult to avoid recession. In Japan, industrial output remains weak and we expect private demand to be only modest in line with firms remaining cautious. However, we expect growth to lift on the back of the tsunami reconstruction effort. In the US, growth appears to have slowed in the early months of 2012 although we expect it to gather momentum. The labour market is looking much stronger and this should help boost incomes and hence household consumption. In China, growth is slowing although this was to be expected. The key issue here is whether the authorities can engineer a soft landing.

 For further analysis download the full report.