Australian agricultural markets have started 2017 in broadly stable territory according to the March Rural Commodities Wrap from NAB Agribusiness, with wool the strongest performing commodity since February 2017.
NAB’s Rural Commodities Index was steady in February 2017 with excellent price runs in lamb and wool neutralising falls in beef and dairy.
However, the index is so far on track for a 1.5 per cent drop in March 2017.
At a state level, Western Australia and South Australia are the only states in which the Index has risen in both February 2017 and March 2017, which is due to a bump in wheat prices.
NAB Agribusiness Economist Phin Ziebell said the wool market is continuing to enjoy some of the best conditions in decades, with prices up 2.5 per cent in February 2017 and 6.0 per cent so far in March 2017.
“The price upturn enjoyed by wool producers has continued despite recent USD weakness. Wool is quite sensitive to currency movements and our expectations of a lower AUD point to further upside,” Mr Ziebell said.
It’s a different story for the dairy industry, with prices giving up more than a third of their gains over the second half of last year, down 5.6 per cent in February 2017 and 11.0 per cent so far in March 2017.
“Low farm gate prices have led to lower milk production and the industry now finds itself in something of a catch-22, as falling milk deliveries are denting processor revenue which impedes the processors’ ability to offer the higher prices needed to boost raw milk production.”
Mr Ziebell said global wheat inventories remained extensive and the USDA upgraded its assessment of global production in March 2017.
“Global markets recently showed some positive signs, but Australian prices have now given up most of their gains from early March 2017. However, we still expect domestic prices to rise around 12 per cent by the end of 2017 because of a falling AUD.”
While the 2017 production outlook is mixed, the climate outlook for drier than average conditions across most of Australia during autumn and winter is likely to curtail overall production.
NAB still expects the AUD to move lower in mid 2017, more so on cross rates than against the USD, and is still forecasting it to fall to 70 US cents by the end 2017.
The previous forecast for an interest rate cut in late 2017 has been removed, given the Reserve Bank’s desire to slow household debt accumulation despite ongoing concerns about economic growth and the labour market in 2018.