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Lower cotton and cattle prices drive NAB Rural Commodities Index down

Phin Ziebell II (high res)
Phin Ziebell

Lower cattle and cotton prices, and a slight easing in the price of wheat have seen the National Australia Bank (NAB) Rural Commodities Index fall by 1.1 per cent in January 2019, after a 0.5 per cent increase in December 2018.

NAB Agribusiness Economist, Phin Ziebell, said the hottest January nationally on record and ongoing lack of rain across most of the country had led to a tough start to 2019 for many commodities.

“Lower cattle prices and very high grain prices saw Queensland, South Australia, Western Australia and New South Wales all underperform on a state by state basis,” Mr Ziebell said.

“Victoria and Tasmania were the only states to record an increase, rising by 1.4 per cent and 1.9 per cent respectively, driven largely by dairy’s stronger performance.

“Cotton prices have trended downwards and the latest ABARES forecasts points to a 42 per cent decline in lint production to 581kt, owing to a sharp reduction in irrigation water availability.

“The 2018-19 winter cropping season was a mixed bag. Western Australia had a cracking season with CBH recording its second biggest harvest on record, taking in 16.4 million tonnes (mt) of grain. At the same time, eastern state harvests were well down, with GrainCorp taking in only 0.6mt in New South Wales, 0.1mt in Queensland and 0.4mt in Victoria.

“The national outlook remains hot and mostly dry, which combined with a severe feed shortage and well below average winter harvest in eastern Australia, is causing grain prices to remain very elevated and placing downward pressure on livestock prices.

“Transport costs are also up around the $100/tonne mark, which is adding to persistently elevated grain prices. The NAB feed grain index was back by 1.3 per cent in January (2019), but up 66.3 per cent on a year-on-year basis.”

In terms of livestock, a hot January 2019 and disappointing wet season saw the Eastern Young Cattle Indicator (EYCI) fall around 9 per cent from December 2018 levels.

“Intense rainfall in Northern Queensland has brought devastation for many north-west graziers as flooding claims the lives of potentially hundreds of thousands of livestock, and further south grain is scarce and remains very expensive,” Mr Ziebell said.

“Despite this, demand for finished cattle remains relatively strong and global markets are looking healthy. Depending on autumn rainfall, there is likely to be elevated restocker demand and upside for the EYCI, which we see sitting around 450c/kg in the coming months.

“Both lamb and wool have come back from their 2018 rally, but the long-term trends remain positive.”

Dairy was one of the strongest performers over the period, rising 10.2 per cent in January 2019 on the back of improved Global Dairy Trade auction prices. Despite this, high water and feed prices make it unclear how much of this benefit is flowing through to the farmgate.

Following big gains in 2018, sugar prices tracked sideways in January 2019. Fruit and vegetables were mixed, with fruit up 11.2 per cent, and vegetables down 1.7 per cent in January 2019 due largely to seasonal conditions.

The Bureau of Meteorology’s latest three-month outlook points to a very dry end to summer and start of autumn in the west, but neutral conditions in the south-east.

“Autumn rain is difficult to predict, and a late break would be a key risk to winter crop yields,” Mr Ziebell said.

Source: NAB

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