November 15, 2011

Rural Commodities Wrap – November 2011

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

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

Agricultural commodities weaken on rout in global financial markets

Dairy prices to weaken further on solid Oceanic production outlook

Australian milk production to rise 2.2 per cent in 2011-12, New Zealand production to increase 5 per cent

The exceptional degree of volatility on global financial markets has continued over the past couple weeks. The VIX Index remains at levels consistent with the global financial crisis while equities in the big developed economies are down by around 5 per cent since the start of the month. Not surprisingly, the AUD has also pulled back in recent weeks as investors have sold off risk assets in favour of USD and treasuries. The AUD/USD has now fallen 0.97 USD.

Sovereign debt problems in Greece, Italy and Spain remain firmly in markets’ sights, while French developments are increasingly grabbing attention. With bond yields in Italy and Spain hovering near the 7 per cent level, the main event is whether the European Central Bank will become a lender of last resort, an outcome strongly opposed by Germany. This is leading to increasing scepticism about the ability of EU leaders to fix this mess and will continue to weigh on equity markets for some time. Added to that, weak economic data is contributing to the gloom surrounding Europe. Industrial production fell 2 per cent in September, while September quarter GDP came in at just 0.2 per cent. This meagre growth rate was propped up mainly by Germany and France, with growth rates of 0.5 per cent and 0.4 per cent, respectively. Elsewhere, the Italian and Spanish economies have stagnated, and have austerity packages in the pipeline that will further restrain activity. Greece and Portugal have contracted as expected, and the Netherlands also experienced a fall in activity.

It has not been all doom and gloom, however, with some promising economic data across the Atlantic. Evidence is mounting that the US economy is growing modestly, with good outcomes for retail sales, industrial production, manufacturing surveys, jobless claims, consumer confidence and the housing sector. It appears that the US recession scare that spooked markets in August and September has passed for now. However, markets are likely to remain jittery about the wrangling over deficit reduction and prospects of further public sector cuts in the face of a weakening global economy.

For further analysis download the full report.

Rural Commodities Wrap November 2011