Higher lamb and grain prices drove the National Australia Bank (NAB) Rural Commodities Index up 1.3 per cent in July 2018, with prolonged dry conditions in Eastern Australia continuing to push feed prices higher.
NAB’s Rural Commodities Wrap, reported that trade lamb surged 13.6 per cent over the period, with the National Trade Lamb Indicator peaking at 794c/kg in late July 2018 before retreating to 755 c/kg.
NAB Agribusiness Economist, Phin Ziebell, said the strong lamb performance was driven by the usual winter shortage and favourable export fundamentals, with wool prices also continuing to impress, despite coming back slightly from the peak of 2,073 c/kg in June 2018.
“China remains a major wool buyer, and while the impact of significant Chinese currency depreciations could be a wildcard for wool, prices remain high and we anticipate growers will see very strong wool cheques over the coming period,” Mr Ziebell said.
Domestic feed prices have continued to climb, due largely to unabated drought conditions in New South Wales and Queensland and the prospect of a below average 2018-19 winter crop in these regions. The NAB feed grain price index rose 1.7 per cent in July 2018, and has skyrocketed a further 10 per cent to date in August 2018.
“We are starting to see feed grain moving from Western Australia to the east, a trend likely to continue if lower than average winter and summer crop yields eventuate as predicted. This demand is flowing through to most grains suitable for stock feed, with barley trading at an elevated level.
“Sorghum production is also an emerging issue, and yields are predicted to be poor without a marked improvement in the season. If yields do disappoint, then we’re likely to see domestic grain prices stay high well into 2019,” he said.
Forecasts for national wheat production have been downgraded again, and are in the range of 18.4 million tonnes with an average spring.
“Our New South Wales wheat production forecast is the lowest it has been since 2007-08, at 3.5 million tonnes. Western Australia is experiencing the most favourable conditions in the country, with production levels of around 8.5 million tonnes predicted,” he said.
Grain focused Western Australia was the strongest performing state on an overall basis, up 2.8 per cent, while dairy-heavy Tasmania was weakest losing 1.0 per cent.
Low feed and water availability has continued to put restocker cattle prices under pressure, with the Eastern Young Cattle Indicator (EYCI) in the mid 400s range. Demand for finished cattle has been resilient so far in 2018, but is expected to come under pressure if seasonal conditions continue.
“Meat & Livestock Australia has reported that saleyard numbers in eastern Australia increased 28 per cent year on year in the four weeks to August 2018, with the female portion of slaughter numbers reaching drought levels of 53.7 per cent in June 2018 – the highest since July 2014.
“Our EYCI forecasts are in the high 400s to low 500s for the coming year, but ongoing tough conditions could challenge this and prices could fall further if water and feed shortages force continued destocking,” he said.
Cotton prices remain strong, with the Cotlook A index averaging $650/bale in July 2018 and ongoing strength in global demand likely.
“The latest ABARES forecast suggests that national cotton production could fall 21 per cent in 2018-19, due to a lack of irrigation water and subsequently lower plantings. While there had been early indications that dryland plantings may increase, seasonal conditions are now so challenging that this seems unlikely.”
In the dairy sector, higher temporary water prices in northern Victoria are likely to prevent increased milk flow despite opening prices for the 2018-19 season at the best levels in some time. Saputo opened on $5.75/kgms and Fonterra and Bega opened at $5.85.
Performance was mixed in the horticulture and wine sectors, with wine grape prices up and wholesale fruit and vegetable prices down. Fruit was down 4.0 per cent to 132 index points, and vegetables down 3.9 per cent to 109.8 index points in July 2018.
“Wine Australia’s 2017 National Vintage Report showed that the average price across all grape varieties rose 7.0 per cent last year, and despite a higher AUD in recent times, the industry looks to be on a more sustainable footing following periods of glut and challenging export conditions,” Mr Ziebell said.
The Bureau of Meteorology’s three month outlook has deteriorated, with the majority of the country predicted to see less than average rainfall through to the end of October. Northern Victoria, southern NSW and the south-east of South Australia are expected to face the most challenging conditions, with Western Australia now likely to see lower than average rainfall as well.
The AUD has traded in a narrower range since late June 2018, and is predicted to appreciate slightly to remain in the mid-70s range for Q4 2018.