RURAL COMMODITIES WRAP - JUNE 2021 Author Phin Ziebell, Senior Economist - Agribusiness
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RURAL COMMODITIES WRAP JUNE 2021 Author Phin Ziebell, Senior Economist – Agribusiness
KEY POINTS
With half the year gone, 2021 is shaping up as another very
CONTENTS strong year for Australian agriculture. The combination of good
NAB RURAL COMMODITIES INDEX
commodity prices and strong seasonal conditions continues National and by state
3 |In focus: dairy
200
4 |Seasonal conditions across many parts of the country, following an excellent 2020. National NSW
5 | Farm inputs Cattle prices remain close to record highs and domestic grain 180 VIC QLD
6 | Livestock prices have now increased in response to a global rally. Australian WA SA
grain remains competitively priced into South-East Asia, and with 160 TAS
7 | Winter crops
8 | Summer crops, sugar plenty of old season crop remaining, opportunities abound.
140
9 | Rainfall data ABARES’ latest estimates for the 2021-22 winter cropping season
point to well above average crop, driven partly by planting area 120
CONTACTS (the area planted to wheat is forecast to be the highest in a 100
decade) but most importantly by improved yields driven by good
Phin Ziebell subsoil moisture. ABARES sees a very strong 27.8mmt of wheat 80
Senior Economist this season. Last month, we flagged dryness concerns in south- 2010 2012 2014 2016 2018 2020
+61 (0) 475 940 662 east Australia. We are now substantially less concerned about the
Riverina, but western Victoria and south-east SA remains a little MONTHLY COMMODITY PRICE CHANGES
Alan Oster
Group Chief Economist dry. Much of Queensland cattle country is likewise dry. The March April May
+61 (0) 414 444 652 Bureau of Meteorology’s three month outlook points to wetter
than average conditions across the country over winter and into Wheat ▼ 3.3% ▲ 1.9% ▲ 5.1%
Dean Pearson spring. Beef ▼ 0.5% ▲ 1.9% ▼ 0.2%
Head of Economics
+61 (0) 457 517 342 Dairy opening prices have been released (and in the case of Dairy ▲ 6.7% ▲ 1.8% ▼ 2.7%
Saputo and Fonterra, revised) and represent a strong result for
producers. For more detail, see our in focus section on page Lamb ▼ 2.4% ▲ 0.9% ▼ 0.3%
three.
Wool ▲ 0.2% ▲ 0.7% ▲ 0.8%
Overall, the NAB Rural Commodities Index was up 2.5% month-
Sugar ▼ 6.2% ▲ 2.2% ▲ 5.6%
on-month in May. The index is now 6.2% above the same time in
2020. Cotton ▼ 0.8% ▼ 1.0% ▼ 0.3%
Australia and the UK have confirmed the broad terms for a free
trade agreement. The agreement is yet to be ratified, but includes Source: NAB Group Economics, ABARES, Meat
and Livestock Australia, Australian Pork,
substantially improved market access for Australian agricultural Ausmarket Consultants, Australian Bureau of
2
products. Statistics, Bloomberg and Profarmer.
IN FOCUS: DAIRY OPENING PRICES
Opening prices have been announced, and
in the case of Fonterra Australia and Saputo,
DAIRY EXPORT AND FARMGATE PRICES AUSTRALIAN MILK PRODUCTION
already stepped up. Saputo opened at AUD/t (LHS), AUD/kgms (RHS) Billion litres per annum
12
$6.65/kgms and stepped up to $6.85/ three 6000 8
days later. Fonterra Australia opened at 10
$6.55 but has likewise stepped up to $6.85
6 8
to stay competitive. 4000
Smaller processors are offering comparable 6
4
opening prices. Bega opened at $6.80 AUD Index (LHS) 4
(southern VIC) and $7 (northern VIC), while 2000
Bulla is in the $6.40-6.90 range. ACM is at MG/Saputo milk price (RHS) 2
2
$6.85 but offering northern suppliers $7.00. Fonterra Australia milk price (RHS)
0 0 0
Global Dairy Trade auction results have 1/01/1990 1/01/2000 1/01/2010 1/01/2020
2008 2010 2012 2014 2016 2018 2020
been flat to lower in USD terms since April
this year, but overall producers should be GDT AUCTION RESULTS
pleased with the trajectory of both GDT and AUD/t
local indicators. Wholesale prices are now 10,000
at a level in AUD terms to support farmgate Butter Cheddar Skim milk powder Whole milk powder
prices in the high $6 range, representing a 8,000
strong return for producers.
A key pressure for the industry has been 6,000
elevated feed and in northern Victoria,
water costs. Both have now eased 4,000
substantially over the last 18 months. While
we see feed costs having essentially 2,000
bottomed out, a return to 2018-19 levels is
highly unlikely this year.
0
Milk flow has likewise stabilised. The latest 2010 2012 2014 2016 2018 2020
ABARES forecasts put production just shy of
Source: ABARES, Australian Dairy Farmer, Global Dairy Trade, Saputo, Fonterra and NAB Economics
9 billion litres in 2021-22.
3SEASONAL CONDITIONS
Seasonal conditions are generally very good ROOT ZONE SOIL MOISTURE BOM RAINFALL OUTLOOK
in most of New South Wales, but a little 17 June 2021 July – September 2021
more mixed elsewhere. Victoria is wetter
than average in Gippsland, about average in
central Victoria and the north-east, but still
a little dry in western Victoria and into
south-east South Australia. The west is a
little drier than average in some areas, but
wetter in others and sentiment there is very
strong for the season ahead.
A good deal of Queensland cattle country
remains drier than average, particularly in
central and western areas. This will be a
particular challenge in parts of Queensland
that missed the best of the wet season and RAINFALL PERCENTAGES BOM ENSO TRACKER
now may have to wait until spring to see April 2021 month to date Monthly SST anomaly 8 June update
the prospect of big rains.
The latest ENSO outlook from the Bureau of
Meteorology shows neutral conditions
currently, but with the model outputs
tending back closer to La Nina later this
year.
The three-month outlook points to
generally wetter than average conditions
through winter and into early spring,
although more average rainfall is likely in
parts of Tasmania and Western Australia.
Source: Bureau of Meteorology
4FARM INPUTS
Farm input prices have clearly seen
NAB FERTILISER INDEX NATIONAL AVERAGE FUEL PRICES appreciation recently, although much less
AUD index AUc/litre so for grain. Our fertiliser index was up
180 petrol 3.4% in May on a monthly basis, but is an
240
160 diesel eye-watering 67.1% higher than the same
220 140 time in 2020. In AUD terms, DAP is up 84.9%
200 120 on a yearly basis, while urea is 47.4%
180 100 higher. Fertiliser prices are likely to remain
160 80 elevated throughout winter.
60
140 Fuel prices have stabilised a little in weekly
40
120 national data, at least in capital cities.
20
However, with global oil prices on the rise
100 0 (and the Australian dollar having dropped a
2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020
little) there is clearly upside risk. Brent
cracked USD70/bbl last month and is now
NAB FEED GRAIN PRICE INDEX hovering around USD72.50.
AUD/t
NAB’s feedgrain price index looks to have
400 finished its easing cycle and is appreciating,
albeit slowly. Our index rose 1.2% last
300 month. Global grain market dynamics are
the key driver, but we do not expect major
upside from here. This points to some
200
stability in feed prices, but it is unlikely that
the lows of 2016-17 will return.
100
0
2010 2012 2014 2016 2018 2020
Source: Bloomberg, Profarmer and NAB Group Economics
5LIVESTOCK
Domestic cattle prices have been fairly stable
CATTLE LAMB over the last couple of months, with EYCI
AUc/kg ESTLI, AUc/kg hovering in the high 800s to low 900s range.
1000 EYCI 1,000
It remains our view that these levels are well
800 US live cattle future 800
in excess of fundamentals. Restocker interest
remains the key driver of young cattle prices,
600 600 with excellent NSW conditions just as much a
driver as the need to restock in Queensland. If
400 400 restocker activity slows due to drier weather
or a reassessment of future prices, there are
200 200 some real downside risks. However, the strong
rainfall outlook is probably a challenge to our
0 0
long-held view of downside risk for EYCI in the
2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020
second half of 2021.
GDT AUCTION RESULTS WOOL Lamb prices have essentially remained in a
50c/kg range for the last month, below their
AUD/tonne Southern region, by micron, AUc/kg
levels over the last two years, but not by
Butter 17 19 21 23
9000 3,500 much. While prices remain very compelling for
Cheddar 25 28 30
8000 Skim milk powder 3,000
producers, we still see lamb values as
7000 Whole milk powder essentially maxed out at 2020’s peak.
2,500
6000 Meanwhile, wool prices continue their upward
5000 2,000 trend, particularly for finer wools. EMI ended
4000 1,500 last week at 1448c/kg, a very strong result
3000 overall.
1,000
2000
500
1000
0 0
2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020
Source: NAB Group Economics, ABARES, Meat and Livestock Australia, Australian Pork, Ausmarket Consultants,
Australian Bureau of Statistics, Bloomberg and Profarmer.
6WINTER CROPS
Six weeks ago, we flagged that there was
the potential for a somewhat mixed winter
WHEAT PULSES
crop, with excellent conditions in New AUD/t AUD/t
1,400 Chick peas Field peas Lupins
South Wales not being mirrored elsewhere. 500
While some areas of Victoria and South 1,200
400
Australia, along with parts of the Western 1,000
Australian wheatbelt, remain drier than
300 800
average, the good news is that seasonal
conditions have generally improved and we 200
600
are now well set up for a strong winter
400
cropping season. The latest ABARES June 100 ASX east Aust future
release points to 27.8mmt of wheat this 200
AUD denominated CBOT
season – a very strong forecast for June. 0 0
Area planted is a key driver for wheat, but 2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020
yields are also looking good.
Price sentiment is likewise strong. Domestic COARSE GRAINS CANOLA
wheat futures are back above $300/t, AUD/t AUD/t, Newcastle
reflecting strong global demand 500 barley (feed) 800
fundamentals. With Australian grain well barley (malting, Geelong) 700
priced into south-east Asia, export volumes 400 oats (feed, Albany)
600
are likely to remain well supported.
300 500
Canola has been an absolute stand-out,
400
supported by a big rally in global oil seeds,
while barley prices are a little weaker than 200 300
growers would perhaps like. 200
100
All things considered, there is much to be 100
positive about in Australian cropping at 0 0
present. 2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020
Source: NAB Group Economics, ABARES, Meat and Livestock Australia, Australian Pork, Ausmarket
Consultants, Australian Bureau of Statistics, Bloomberg and Profarmer.
7SUMMER CROPS, SUGAR AND HORTICULTURE
Cotton prices have enjoyed something of an
upward trend recently, but the major good
COTTON SORGHUM AND RICE
news is filling storages and better AUD/bale AUD/t
1,400
800
allocations. ABARES’ June estimates put sorghum (Newcastle)
cotton area up 49% in 2021-22 to 443,000ha, 1,200 700 rice (US rough)
with lint production up 55.7% to 946kt. 1,000 600
500
Wholesale fruit and vegetable prices both 800
gained in May – up 4.5% and 23.7% 400
600
respectively. Tomatoes were a major driver 300
of the vegetable price gains. As has been 400
200
the case since the pandemic began, labour 200 100
availability will remain a challenge until 0 0
normal travel returns (forecast by the 2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020
Commonwealth at mid-2022).
SUGAR FRUIT AND VEGETABLES
AUD/t Index
1,000 300
Fruit
250
800 Vegetables
200
600
150
400
100
200 50
0 0
2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020
Source: NAB Group Economics, ABARES, Meat and Livestock Australia, Australian Pork, Ausmarket Consultants, Australian Bureau of Statistics, Bloomberg and Profarmer.
8MONTHLY AVERAGE RAINFALL IN WINTER CROPPING REGIONS (MM)
Long run average 1900-01 to 2013-14 La Nina years 2021 2020
NEW SOUTH WALES VICTORIA QUEENSLAND
150 150 150
100 100 100
50 50 50
0 0 0
Sep
Jan
Nov
Dec
Sep
Dec
Sep
Feb
Jan
Nov
Feb
Jan
Nov
Dec
Feb
Mar
Apr
May
Oct
Mar
Apr
May
Oct
Mar
Apr
May
Oct
Jun
Jul
Aug
Jun
Jul
Aug
Jun
Jul
Aug
WESTERN AUSTRALIA SOUTH AUSTRALIA TASMANIA
150 150 200
150
100 100
100
50 50
50
0 0 0
Sep
Dec
Sep
Jan
Nov
Dec
Sep
Nov
Dec
Feb
Jan
Nov
Feb
Jan
Feb
Mar
Apr
May
Oct
Mar
Apr
May
Oct
Mar
Apr
May
Oct
Jun
Jul
Aug
Jun
Jul
Aug
Jun
Jul
Aug
Source: Bureau of Meteorology and NAB Group Economics
9Important Notice
This document has been prepared by National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 ("NAB"). Any advice contained in this document has been prepared without taking into account your objectives,
financial situation or needs. Before acting on any advice in this document, NAB recommends that you consider whether the advice is appropriate for your circumstances.
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