While the NAB Rural Commodities Index was down 1.2 per cent in February, almost all of the downside was driven by falling cattle prices as the industry faces parallel challenges of higher turn-off, processor constraints and tough global conditions.
With cattle prices continuing to fall, volatility is likely to continue.
NAB’s Phin Ziebell said other commodities including wheat, cotton and sugar experienced price gains over the period, although had since retreated somewhat in recent weeks.
“Australian wheat prices rose earlier this month, cracking $400/tonne before retreating around $20,” Mr Ziebell said.
“A lower Australian dollar in early March was the main driver, and prices will likely unwind if the AUD appreciates.
“Global prices are generally weaker at present, most recently reflecting the renewed Russia-Ukraine grain export agreement and more favourable weather in the United States.
“We see the AUD rising to around US78¢ by end 2023 and US80¢ by the end 2024. This view is largely predicated on a longer-term depreciation of the USD while a reopening in China is a positive for global commodity demand.
“Cotton prices stabilised in the new year although the last few weeks has seen some downside, with the AUD Cotlook trading at around $700/bale.
“Sugar prices continue to chalk up further gains — one of the few commodities in our index seeing consistent growth.
“We see the oil market outlook, combined with supply concerns, as key drivers in coming months, and prices are likely to remain elevated.”
Mr Ziebell said the Australian agriculture sector was collectively weighing up a range of domestic and global influences, including the threat of an El Niño event.
“An El Niño, if it develops, increases the chances of a hot, dry spring-summer across eastern and northern Australia,” he said.
“The global economic outlook has become much more complicated recently.
“Central banks find themselves caught between competing forces of persistently high inflation despite steep policy rate increases in much of the world in 2022, and banking sector instability in both the United States and Europe.
“The Australian economy looks to have remained resilient in quarter four, with real retail sales declining only modestly, business conditions remaining well above average and the labour market remaining strong.
“However, we see growth slowing sharply from here as consumer spending comes under pressure from both higher rates and inflation.”
Looking to interest rates, Mr Ziebell said NAB still expected the RBA to lift rates at each of the next two meetings, taking the cash rate to 4.1 per cent, and holding there until cutting in early 2024.