After a modest 0.4 per cent increase in June, resilient cattle and lamb prices have offset a mixed winter crop outlook to see the National Australia Bank Rural Commodities Index remain flat in July.
The NAB Rural Commodities Wrap reports Australian agricultural commodity prices continue to perform well, with cattle and lamb the main standouts.
NAB agribusiness economist Phin Ziebell said despite strength in the cattle market, seasonal conditions remained an ongoing cause of volatility and the future trajectory of the Eastern Young Cattle Indicator depended largely on rain in the eastern states. "The EYCI is sitting just below 530¢/kg, reflective of improved conditions in certain regions and strong processor demand,” Mr Ziebell said.
“While premiums for finished and southern cattle remain, poor conditions further north are ultimately a brake on prices and we don’t expect much upside for the EYCI unless NSW and Queensland see some good rain.”
The report also revealed that lot feeding cattle continues at an elevated rate, with more than 1.1 million head on feed.
Containment feeding of lambs is also expanding, which may see traditional seasonal factors become less influential over time.
“Lamb prices remain very high despite a retreat from last month’s record, and the hot trade lamb price is driving growth in containment feeding,” Mr Ziebell said.
“Looking ahead, we are cautious as to whether lamb prices will remain at these levels, with the traditional spring flush looming.
“Wool prices have dropped recently, and any further escalation of US-China trade tensions remains a key risk for the wool sector.”
A strong, late break in Western Australia, Victoria and South Australia has led to good winter crop condition reports, with the latest ABARES crop outlook reporting a slightly improved wheat volume of 21.2 million tonnes.
“NAB’s wheat crop assessment remains on hold this month, at 20.4 million tonnes," Mr Ziebell said.
"While there’s a good chance the crop will exceed this figure, the dry outlook is concerning and ultimately some spring rain is needed."
NAB has also cut its Australian Dollar forecast substantially due to strength in the United States dollar, ongoing US-China trade tensions, and interest rate cuts by the Reserve Bank of Australia.
“We have cut our Australian Dollar forecast from 0.74USD in the first quarter of 2020, and now see it bottoming out at 0.66USD," Mr Ziebell said.
"While this is generally good for Australian agricultural exporters, the lower AUD will see higher fuel and fertiliser prices."