NAB predicts EYCI to sit mid-400c/kg to low 500c/kg
FOLLOWING a large monthly gain of 6.5 per cent in September, the NAB Rural Commodities Index has continued to perform well month-on-month, rising a further 1.8 per cent in October.
Released last month, the latest index shows sugar and barley were key drivers of the increase, which was offset by weakening lamb and wool prices.
NAB agribusiness economist, Phin Ziebell, said sugar had enjoyed a 24.1 per cent price rise in October, while prolonged drought conditions - and associated domestic feed demand - had led to an 11.7 per cent rise in barley prices.
“Domestic feed prices are still extremely elevated compared to historic norms and global benchmarks,” Mr Ziebell said.
grain availability amid drought conditions, and below average 2018-19 winter crops.
“Some recent rain caused grain price indicators to soften slightly, but things are far from normal.”
The NAB feed grain price index is up 7.2 per cent month on month, and 76.6 per cent year on year in October.
Lamb prices fell nine per cent over the period, in what was the biggest monthly fall across all commodities in the per cent softer.
“Lamb prices have been on a rollercoaster recently,” Mr Ziebell said.
“The National Trade Lamb Index peaked at an extraordinary 875c/kg in early September, before falling to 671c/kg in early October, rising to 783c/kg in late October.
“Despite this, lamb prices remain very good for producers on the whole.”
In contrast, the demand for wool has softened, and this saw the Eastern Market Indicator drop back to 1776c/kg early in November.
Despite dry conditions in much of the country, the Eastern Young Cattle Indicator ( EYCI) remained resilient.
“The ongoing resilience of the EYCI is largely a result of cattle, as opposed to any restocker demand, which is likely to be constrained by a dry weather outlook and high feed costs,” Mr Ziebell said.
“Whether or not this demand is sustainable remains to be seen, and we will be watching US domestic market developments closely.
“Over the coming months, we anticipate that the EYCI will sit in the mid-400c/kg to low 500c/kg level.”
On a state-by-state basis, Queensland was the best performer in October, followed closely by Western Australia.
“Our index showed that most regions gained on a monthly basis in October, although lower lamb and dairy prices did have an impact on Victoria, South Australia, Tasmania and western New South Wales.
“Global dairy trade auctions continue to disappoint, and while the lower AUD has any major improvements in the short term.”
Winter crops in the eastern states have had a very tough season, with October rain coming too late to many of the most drought affected regions.
“Despite a somewhat mixed spring, WA remains on track for an above average season,” Mr Ziebell said.
“However, downgrades in NSW and QLD saw the wheat production forecast fall from 17.4 to 16.9 million tonnes.”
Cotton prices remain strong, despite having fallen slightly this month.
Crop production is expected to be a key challenge, due to a sharp reduction in available irrigation water and tough dryland growing conditions.
“The Bureau of Meteorology’s outlook shows a 70 per cent chance of El Nino this year, and the dry threemonth outlook is concerning given that water storage levels are already low,” Mr Ziebell said.
“Murray Darling Basin storage levels have now dropped below 50 per cent, which is the lowest spring amount since 2015.
“If allocations are affected, then temporary prices will be high in coming months and growing conditions could become increasingly challenging.”
The AUD was trading slightly higher toward the end of October, and is forecast to trade between the USD 0.71 – 0.75 between now and the third quarter of 2019.