The NAB Rural Commodities Index has recorded its largest monthly rise since mid-2016, rising 4.6 per cent in January on a national basis following strong rainfall in some key production areas and associated responses in livestock markets.
The result comes amid the bushfire disaster and coronavirus outbreak.
NAB Agribusiness economist, Phin Ziebell, said the agricultural impact of the bushfires was largely concentrated to southern regions.
“While the impact on areas in southern New South Wales, East Gippsland, Northern Victoria and South Australia is severe and ongoing, the fires are unlikely to have materially impacted national agricultural production,” Mr Ziebell said.
The report also detailed two possible impacts of the coronavirus outbreak on Australian agriculture: lower demand, and logistical problems moving product to and within China.
“Around a quarter of our total agricultural exports go to China with the majority of these shipped,” Mr Ziebell said.
“There are reports of offloading and distribution issues, and while Chinese wholesale meat prices have increased since the virus outbreak, getting product to market may become challenging and we could see this impact strong processor demand for finished cattle in Australia.
“Australian rock lobster exports have been entirely cut off and any products facing air freight are also likely to encounter logistical issues.”
Australian grain continues to trade well above international benchmarks and feed prices remain high by world standards.
“The NAB feed grain price index averaged $312/tonne in January, up 4.3 per cent on December but 13.6 per cent lower than a year ago,” Mr Ziebell said.
“Following dismal yields this season, we don’t see much downside here until there is a good break.”
Challenges remain for summer crops, with water allocations in the Murray Darling Basin practically non-existent in cotton producing regions.
“While cotton prices are well below peak in AUD terms at $577/bale in January, price is not the problem and good rain would see good returns for growers,” Mr Ziebell said.
“Having all but missed the winter crop, some northern NSW and Qld grain growers have received enough rain to plant a late sorghum crop, but total crop size is likely to be below average.”
Despite coronavirus concerns, livestock prices surged in response to average or above average January rain in key production areas.
“The Eastern Young Cattle Indicator has now reached 635c/kg. While this is the highest price since June 2017 and around 100c below the 2016 record, we are cautious about calling a recovery in cattle prices until there is sustained follow up rain,” Mr Ziebell said.
“Lamb has also received a boost. The National Trade Lamb Indicator sits at 821c/kg and we expect to see continued upside due to drought-constrained supply.”
The wool market has improved, with the Eastern Market Indicator sitting at $15.77/kg at the end of January.
“Our dependence on Chinese demand does leave the wool price exposed to the impacts of coronavirus and on balance we have wool price risk weighted on the downside,” Mr Ziebell said.
“Likewise, concerns about coronavirus put a dent in recent Global Dairy Trade auction results, which fell 4.7 per cent in USD terms in February.”
Fruit prices fell 8.1 per cent in January, while vegetables were up 13.9 per cent.
The Australian dollar is currently sitting around USD0.67, with NAB forecasting an increase to USD0.71 by the end of 2020.