WOOL has proven the strongest performing commodity since February according to the latest Rural Commodities Wrap from NAB Agribusiness.
NAB’s Rural Commodities Index was steady in February with excellent price runs in lamb and wool neutralising falls in beef and dairy. However, the index is so far on track for a 1.5 per cent drop in March.
At a state level, Western Australia and South Australia are the only states in which the index has risen in both February and March, which is due to a bump in wheat prices.
NAB Agribusiness economist Phin Ziebell said the wool market is continuing to enjoy some of the best conditions in decades, with prices up 2.5pc in February and 6pc so far in March.
“The price upturn enjoyed by wool producers has continued despite recent US dollar weakness,” Mr Ziebell said.
“Wool is quite sensitive to currency movements and our expectations of a lower Australian dollar this year point to further upside.”
The NAB report says it is a different story for the dairy industry, with prices giving up more than a third of their gains over the second half of last year, down 5.6pc in February and 11pc so far in March.
“Low farm gate prices have led to lower milk production and the industry now finds itself in something of a catch-22, as falling milk deliveries are denting processor revenue which impedes the processors’ ability to offer the higher prices needed to boost raw milk production,” Mr Ziebell said.
He said global wheat inventories remained extensive and the USDA upgraded its assessment of global production this month.
“Global markets recently showed some positive signs, but Australian prices have now given up most of their gains from early March,” Mr Ziebell said.
“However, we still expect domestic prices to rise around 12 per cent by the end of 2017 because of a falling Australian dollar.”
While the 2017 production outlook is mixed, the climate outlook for drier than average conditions across most of Australia during autumn and winter is likely to curtail overall production, the report says.
NAB still expects the Australian dollar to move lower in coming months, more so on cross rates than against the US dollar, and is still forecasting it to fall to US70c by the end of the year.
The previous forecast for an interest rate cut in late 2017 has been removed, given the Reserve Bank’s desire to slow household debt accumulation despite ongoing concerns about economic growth and the labour market in 2018.
