Dollar strength impacts prices

By Country News

The strength of the Australian dollar against a falling United States dollar was a thorn in the side of local prices in January, with the NAB Agribusiness Rural Commodities Index falling two per cent due to falls in cattle, dairy, sugar, wheat and pulse prices.

The latest NAB Rural Commodities Wrap released last week shows a mixed start to the year, with positive movements in lamb and wool.

NAB has adjusted its exchange rate forecast, now predicting a drop in the Australian dollar to at least about 75 cents against the US dollar. However, it hasn’t ruled out the continued weakness of the USD having an impact on this.

NAB Agribusiness economist Phin Ziebell said weather continued to be a major driver for agricultural prices and production.

‘‘Wool is the standout, enjoying some of the best conditions in decades,’’ Mr Ziebell said.

‘‘The Eastern Market Indicator stands at more than 1700c/kg, representing excellent returns for growers despite being slightly off the highs seen in January, with the biggest gains in fine and superfine microns.

‘‘Lamb prices also continue to display incredible resilience in the face of seasonal conditions, with the MLA National Trade Lamb Indicator currently tracking around the same level as this time last year, around 632c/kg.’’

Mr Ziebell said a lack of supply from well-below-average winter crop yields in parts of the country continued to have an impact on prices.

‘‘Good planting conditions for sorghum gave way to a dry January, and although parts of Queensland saw useful rain the past week or so, it will be tough if there isn’t good follow-up rain,’’ he said.

‘‘If expected yields remain below average, the domestic premium on grains is likely to remain a while longer in eastern Australia.

‘‘On the other hand, pulse prices have tanked in response to the Indian Government’s decision to impose and increase tariffs on chickpeas and lentils.’’

Cattle prices have trended lower amid dry conditions in Queensland, and forecasts of continued below-average rainfall will continue to interrupt restocker activity.

The last three global dairy auctions have been higher in USD terms, but that’s been blunted domestically by the higher AUD and signals for the coming year are challenging.

Farm gate prices continue to track close to the long-term average, which is $5.90/kg of milk solids during the past eight years.

Meanwhile, cotton picking is running earlier than usual, and, with decent prices, many farmers are in for a good season.

NAB’s view remains that the Reserve Bank of Australia will lift official interest rates in the latter half of 2018.