IN WHAT is the biggest monthly gain since December 2010, strong wheat and cattle prices drove a 6.5 per cent rise in the National Australia Bank (NAB) September Rural Commodities Index.

Strong grain prices saw the Index rise 10.8pc cent in Western Australia (WA), its biggest gain since 2012, while in Tasmania it only gained 2.8pc on the back of weak global dairy prices.

NAB Agribusiness economist, Phin Ziebell, said challenging seasonal conditions in the eastern states had seen domestic grain prices hit extreme levels, with ASX wheat jumping 22pc to average $430/tonne.

“Domestic grain premiums are banking on very limited eastern Australian supply and export. Tight volumes do look likely given the poor state of eastern winter crops, and there are associated concerns around the ability of livestock producers to absorb feed costs in drought conditions,” Mr Ziebell said.

“The national wheat production forecast is down slightly this month from 18.1 million tonnes to 17.4 million, reflecting downgrades in WA, Victoria and South Australia. That said, we still anticipate WA will deliver an above average result.

“Although October did bring good rain in some areas, eastern production will still be below average with a lot of cereal crops already cut for hay. With a large portion of the canola crop now also cut for hay, prices are high and could remain that way for most domestic grain throughout summer and into next year.”

Rain over the past week has improved the summer crop outlook in New South Wales and Queensland, and sorghum planting conditions have been boosted, albeit from a low base.

“ABARES’ September estimate for sorghum production in 2018/19 was around 1.6 million tonnes, however even a good season is unlikely to fully ameliorate the feed shortage owing to limited pasture and the poor winter crop. That said, a good summer crop will be welcome news for graziers.”

Cotton prices remain strong, however production is likely to be down on last season due to a sharp reduction in available irrigation water.

Livestock prices have been mixed, with cattle prices holding up quite well but lamb falling slightly.

“After a big increase in late August, the National Trade Lamb Indicator (NTLI) has come back to a similar level as this time last year, sitting at 697 cents/kilogram.

“Wool has seen some weakness too, although EMI is now back above 2000c/kg.”

Cattle prices have remained resilient, with the Eastern Young Cattle Indicator (EYCI) up 6.1pc despite tough conditions. The EYCI is predicted to remain in the mid 400-500c/kg range over the coming months.

“Although there has been a big drop in demand for restocker cattle, these stronger cattle prices are reflective of the demand for finished cattle. However, if demand subsides and high US production continues, then we may see a further EYCI downside beyond drought influenced domestic stocking levels.”

Global dairy prices remain disappointing, after early October saw another decline in United States dollar (USD) terms. While the lower Australian dollar (AUD) has supported the domestic indicator, it’s difficult to see further increases in the current climate.

The BoM three-month outlook is mostly drier than average, except for parts of WA and the NT. The Bureau has now moved to El Nino alert, pointing to a 70pc chance of an El Nino event developing this year.

The current AUD forecast has been cut and is now sitting inside the USD 0.70 – 0.75 range.

Source: NAB