February 15, 2012
Rural Commodities Wrap February 2012
The NAB Rural Commodities Wrap focuses on some of the key economic activity that occurred in the Agribusiness sector during the month. Agricultural commodity prices easing further on increased production, AUD impact on livestock markets Sluggish global consumption growth, increased competition from South America and South Africa impacting Australian wine exports Domestically, Australian wines under increasing pressure from rising import […]
The NAB Rural Commodities Wrap focuses on some of the key economic activity that occurred in the Agribusiness sector during the month.
- Agricultural commodity prices easing further on increased production, AUD impact on livestock markets
- Sluggish global consumption growth, increased competition from South America and South Africa impacting Australian wine exports
- Domestically, Australian wines under increasing pressure from rising import penetration
Commodity prices have performed reasonably well over the past month. Despite signs of a slowdown in emerging market economies and continued uncertainty impacting Europe, markets no longer appear to be pricing in a worst case scenario of a global recession. This has seen the VIX Index of market volatility pull back to levels last seen in the middle of last year. As such, the new year has seen an increase in investor risk appetite, which has generally fuelled fund interest in growth commodities.
While the Eurozone crisis appears far from resolved, we are starting to see some evidence of stabilisation. Equity markets have generally improved and prices no longer reflect a global recession while spreads on sovereign bonds across a number of Eurozone countries have narrowed. Importantly, business sentiment across a number of OECD economies ticked higher late last year, having fallen sharply in the preceding six months. This outcome, although varied across countries, does not appear to suggest a looming global recession. Despite the solid start to the year, however, sovereign debt issues in the Euro zone remain unresolved and the Euro zone does appear to have entered a recession. This uncertainty is taking its toll on economies around the globe, with weakness in the Euro-zone periphery now spreading towards the core. Further exacerbating the current situation are high energy prices, with oil prices soaring in recent weeks and natural gas prices in Europe still high. At the same time, growth in the emerging market economies also appears to be weakening. In the December quarter, China posted its lowest growth rate in two and a half years while weaker global trade has seen a slowdown in the export-oriented economies of East Asia and Latin America.
Both the IMF and World Bank have lowered global growth forecasts, although they are mostly playing catch-up with their new forecasts now more consistent with private sector views including our own. Despite this weakness, it is still expected that global growth will likely come in at around trend in 2012, supported mostly by the big emerging market economies.
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