The NAB Rural Commodities Index gained 1.2% month on month in February, following a drop of 1.8% in January. On a year on year basis, the index was down 2.9% in February. The gain was driven by higher grain, fruit and dairy prices, offsetting falls in beef, lamb and sugar.
* The weak La Niña event which began late last year turned out to be mostly a fizzer for eastern Australia, with many areas seeing well below average summer rainfall. This has led to both higher feed grain and lower cattle prices in the eastern states. However, the last week has seen big rains across much of Queensland, which should give cattle prices a jolt. Meanwhile, the west has seen a generally wetter than average summer. The Bureau of Meteorology’s outlook for autumn points to drier than average conditions for the mainland but a potentially solid break for Tasmania. With little subsoil moisture in the east, mainland cropping will be very dependent on in-season rainfall, although the west is better set up for the season ahead.
* While La Niña disappointed in Australia, it looks to have more of an impact in the United States, where concerns about the state of the winter wheat crop continue to mount. While a good spring could salvage things, it looks increasingly likely that yields will be under pressure. This could present an upside for grain prices later in 2018.
* There are increasing risks that global dairy prices will come under pressure amid northern hemisphere oversupply and a recovery in NZ. Last week, the ACCC flagged limited concerns over Saputo’s takeover of MG which may see MG divest the Koroit plant.
For further details, please see the attached report: