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

 • Commodity markets remain under pressure on weaker economic outlook, financial market volatility

• Outlook for Australian farm sector weaker, but still strong as rising production prospects help to offset lower global prices

• Lamb prices softening, to recover but remain under pressure from increased volumes at saleyards, cautious export outlook

Global financial markets have generally been characterised by a spate of mood swings in recent weeks although the generally direction for most markets has been lower. The formation of the ‘pro-austerity’ government in Greece provided some relief for markets but this was soon diminished by Spanish 10-year bond yields edging above 7 per cent, a level that triggered the bailout of other Euro-zone economies. More recently, the European Summit provided markets with a positive surprise – that the Summit actually decided something – which saw an increase in risk appetite and concomitant market reaction. While the European Summit did not find agreement on the long-term details, relief was offered to Spain and Italy with direct bank funding from the ESM. This is a positive move and should by the EU a little more time.

Economic conditions outside the Euro-zone appear to have weakened, as the spill over effect from financial market volatility on sentiment as well as reduced European imports takes hold. Economic data coming out of the US – which had been a beacon of hope through early 2012 – has generally disappointed. Employment growth has slowed and households appear rattled as income growth has not kept pace with prices while wealth levels are impacted by weaker equity markets. Similarly, industrial activity appears to have slowed in recent months. In China, the recent set of partial indicators point to an economy that has continued to soften. Recent PMI and industrial production growth readings have weakened and forward orders suggest a further softening in the coming months.

With global trade also easing, the outlook for a number of emerging market economies has weakened. In all, these recent developments have led us to revise down our global GDP growth forecasts to 3.2 per cent in 2012, with downward revisions to growth in the US, Japan, Euro-zone, Asian Tigers and India. There are considerable downside risks to our view, however, provided that politicians commit to avoiding the worst (such as a Euro-zone collapse or excessive fiscal austerity in the US), the outlook for growth should improve next year – but with lots of uncertainty and near-term market volatility on the way.

 For further analysis download the full report.

Rural Commodities Wrap June 2012