Drought bites commodities

By Country News

A tough start to the growing season in eastern states and falling cattle prices have seen the National Australia Bank’s Rural Commodities Index fall by 2.7 per cent last month.

Released last Tuesday, the NAB Rural Commodities Wrap reported the Eastern Young Cattle Indicator dropped to 385¢/kg in early March, its lowest level since late 2014.

NAB Agribusiness economist Phin Ziebell said more rain would likely drive elevated restocker demand.

‘‘Good rain would boost the EYCI, but the dry autumn continues in southern Australia and elevated demand looks less likely in the short term,’’ Mr Ziebell said.

‘‘We see the EYCI sitting in the 400¢/kg range in 2019, before recovering to around 500¢/kg in Q1 (the first quarter of) 2020.’’

Eastern states grain prices have also come down from their peak, with wheat dropping from the mid $400/tonne range to the mid $300/tonne range.

‘‘Our grain price forecasts have east coast wheat in the high 300s over winter, although if drought continues then many producers will have no choice but to destock, which would cap grain demand,’’ Mr Ziebell said.

‘‘Timing of winter planting is proving challenging, with parts of south-eastern Australia still very dry.

‘‘Unless the season turns, the chances of average production levels this season are increasingly unlikely.’’

He said lamb continued its stable performance, reflecting strong demand from overseas, and a hot wool market was driving very strong returns for the industry.

‘‘Super fine wool has pulled back, while coarser wools (above 20 micron) have strengthened.

‘‘A slowdown in global growth is an emerging risk of the industry, as it could see lower consumer demand for high quality woollen garments.’’

Global Dairy Trade auction prices remained strong in March.

‘‘Every auction result since December 2018 has been positive in US dollar terms,’’ Mr Ziebell said.

‘‘While step-ups in farm gate prices have also been positive, high input costs remain a major challenge, particularly for irrigators in northern Victoria.’’

Storage volumes for major public storages in the Murray-Darling Basin remain at generally depressed levels, with little significant inflows.

‘‘Private storages in the basin are also low and allocations remain tight for the coming season, which will have a bearing on cotton production again this year,’’ Mr Ziebell said.

Fruit and vegetables fell slightly from their strong performance in February, dropping 5.4 per cent and 2.7 per cent respectively.

‘‘Monthly moves in horticulture prices often reflect seasonal patterns more than anything else, and weather was a major factor in February and March,’’ Mr Ziebell said.

On a state-by-state basis, Tasmania was the only state with a stronger performance in March, up 0.6 per cent.

All other states were down, with lower cattle prices in early March driving the decline in Queensland and the Northern Territory.