Rural Commodities Wrap – August 2011

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.

  • Australian wheat crop downgraded to 21.8 million on dryness in northern NSW, Queensland
  • Beef prices to fall in near term on weakness in Japan, US and high AUD but recover in medium term on tight global supply
  • Australian cattle herd rebuilding faster than expected on continuation of strong seasonal conditions through 2011

Global financial markets have fallen heavily in recent weeks as evidence accumulates that the pace of economic growth is slowing. A softening in global growth from 2010’s exceptional 5 per cent rate was predicted but the slowdown is looking sharper than previously expected. While equity markets are down and bond markets have been driven by another flight to quality, measures of market volatility remain well below what was seen during the financial crisis. Commodity markets are down by around 5 to 10 per cent from their April peaks but prices remain very high by historical standards. This suggests that although global growth is clearly slowing, commodity demand is not slipping badly. Agricultural commodities were somewhat shielded against the latest sell-off, with price falls weak relative to hard commodities. This suggests that weather concerns have shielded the agricultural commodities complex somewhat in recent weeks.

The synchronised slowdown in global growth has worsened and we have revised our growth forecasts down by 0.25 percentage points in 2011 and 0.5 percentage points in 2012. There are big disparities between regions in terms of their economic outlook. The emerging market economies are slowing but their growth is still quite rapid and it is this that provides much of the ballast for global growth through the next few years. The upturn in the big developed economies has been disappointing, with output still below its level in early 2008. Growth in the developed world is likely to be lacklustre at best, which will leave unemployment little changed or even worse. Clearly risks rise if financial instability remains high – albeit much depends even then on China’s response.

The latest bout of weakness in global equity markets largely reflects “fear” about a global recession. That said, in the US, besides debt concerns, the latest GDP estimates saw big downward historical revisions. This weakness is largely explained by disappointing outcomes for consumer spending, particularly for durable goods. The crucial judgement is now whether the US economy continues slowing into a ‘double dip’ recession. Our assessment is that recession can be averted and growth could accelerate modestly in the latter half of the year.

 For further analysis download the full report.