Falling dollar contributes to Rural Commodities Index rebound
(16 June 2015 – Australia) The falling Australian dollar has helped boost support to local commodities.
Higher beef, lamb, wool, fruit, vegetables and pulses prices drove the NAB Agribusiness Rural Commodities Index 4.2 percent higher in May in Australian dollar (AUD) terms and 3.4 percent in United States dollar (USD) terms.
General manager of NAB Agribusiness, Khan Horne, said the AUD resumed its downward trajectory in the month, which provided further support to local prices.
“Helping drive the rebound in the Index was the upward momentum in cattle markets, which continued in May.
“Leading this was very strong feedlot demand, which contributed to the 8.3 per cent rise in the Eastern Young Cattle Indicator in May to average 478.6 AUc/kg.
“Lamb prices were also up, by 6.4 per cent, with the National Trade Lamb Indicator averaging 575.3 AUc/kg. This uptick in prices has continued through early June.”
Wool continues to rally, with the Eastern Market Indicator at its highest level since mid-2011 and averaging 1,238 AUc/kg, up 9.8 per cent.
The recent gains break a period of relative stability in wool prices, and if sustained, should improve grower profitability.
In contrast, the NAB monthly weighted dairy price indicator continued to fall in May, losing 8.6 percent in AUD terms, and the last six International Dairy Trade auctions have seen prices trend lower.
NAB said this reflects improved supply and lacklustre international demand.
In terms of production conditions, the Bureau of Meteorology’s declaration of El Niño continues to cloud the production outlook, particularly for winter grains.
The impact of El Niño events varies considerably and it is still too early to judge what, if any, impact the current event will have for agriculture.
Looking at the impact of the AUD, NAB expects it will continue to weaken in the second half of the year.
“Our AUD/USD forecast shows the AUD falling to a low of 0.74 this year and 0.73 in 2016 before recovery commencing in later in 2016 and into 2017,” said Horne.
“Based on our forecasts for activity, the labour market and inflation, we don’t expect to see the RBA make further cuts to interest rates, however if forecasts are not achieved this remains a possibility.
“We expect that the next move in rates will be up, but not until late 2016 and with a lower end point for the cash rate of around 3.5 percent,” said Mr Horne.
NAB’s Rural Commodities Index includes 28 commodities (wheat, barley, sorghum, rice, oats, canola, chick peas, field peas, lupins, wool, cotton, sugar, wine grapes, beef, lamb, pork, poultry, dairy, apples, bananas, oranges, mangoes, strawberries, broccoli, carrots, lettuce, potatoes and tomatoes). The index is weighted annually according to the gross value of production of each industry in Australia.
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