SOLID grain, lamb and wool prices drove a 0.7 per cent rise in the National Australia Bank Rural Commodities Index in August.
Despite the modest upturn, results were highly region and commodity specific given varying seasonal conditions across the country.
Grain-dependent Western Australia saw the biggest gain of all states, at 5.2 per cent while Queensland was the weakest performer down 3.1 per cent.
NAB Agribusiness Economist, Phin Ziebell, said with much of the East still in severe drought, state-based wheat production forecasts had shifted significantly.
“Ongoing drought conditions have seen the New South Wales wheat production forecast drop to 2.3 million tonnes, while the forecast for Western Australia has risen to 9.5 million tonnes,” Mr Ziebell said.
“The national wheat production forecast is down slightly this month from 18.4 million tonnes to 18.1 million tonnes, but the Western Australian wheatbelt remains on track for a good season.
“Late frosts are posing a problem right around the country, with some crops being cut for hay, but we still anticipate that Western Australia will still see above average yields.
“In addition, domestic prices remain high with the ASX wheat futures reaching $450/tonne last week.”
The persistently dry conditions will also be felt across the outlook for many other winter crops.
“High demand is expected to continue driving prices for most feed grain types, including barley, and frost activity in some areas is expected to keep yields under pressure," he said.
“Canola prices have also seen a decent upside for the first time in several years, but a lack of rain has led to some crops being cut for hay. While high demand has led to strong sorghum prices, yields could be poor unless the season dramatically improves between now and the end of the year.”
Livestock has been mixed, with lamb prices receding slightly and cattle showing resilience in tough seasonal conditions.
“Lamb prices remain very strong, despite coming back slightly from a peak of 875c/kg in early September to 768c/kg.
“The expansion of the competing New Zealand dairy industry and the structural contraction of the Australian sheep flock over the past decades has set the scene for strong demand, and we anticipate that prices will stay solid this year.
“Wool cheques remain very strong, with the Eastern Market Indicator sitting at 2,067 c/kg. China remains the leading buyer of Australian wool, and while any major trade dispute between the United States and China could impact the market, prices are excellent right now.”
Cattle prices have stayed relatively resilient, with the Eastern Young Cattle Indicator breaking 500c/kg in recent weeks.
“The ability for cattle prices to stay at these levels is largely weather dependent. The female share of slaughter numbers remains at drought levels, and water and feed shortages could force further destocking.”
Pork producers are also feeling the pinch from higher feed grain prices, and pork prices were down 0.5 per cent in August before rising 1 per cent in September, to date.
Cotton prices remain strong, despite falling slightly from $645/bale to $634/bale in September. The latest ABARES forecast anticipates that cotton production will fall by 44.5 per cent in 2018-19 due to less available irrigation water and a subsequent reduction in plantings.
Global Dairy Trade auctions have been weaker in the second half of the year. Exchange rate fluctuations saw the NAB weighted dairy export price indicator come down 2.6 per cent in AUD terms in August, and up 1.5 per cent in September.
Domestic 2018-19 opening prices are $5.75/kgms for Saputo and $5.85/kgms for Fonterra Australia and Bega.
“Our forecasts aren’t showing any major upside for global dairy prices in USD terms over the coming year, but a hot European summer and the upward trend in grain prices could see the market come to life in the short term. Fonterra announced its first ever loss of NZD 196 million, so New Zealand farmgate prices will be closely watched.”
Wholesale fruit prices were lower again by 2.0 per cent to 129 index points, and the strawberry crisis is expected to impact the index in September as well. Vegetables were 3.6 per cent higher to 114 index points.
The Bureau of Meteorology’s three-month outlook is grim, with much of the country less likely than average to exceed average rainfall.