DESPITE milk oversupply and low farmgate prices hitting farmers, the dairy industry has been Australia's rural commodities "standout performer" in the past two months according to National Australia Bank (NAB) Agribusiness.
The NAB's weighted dairy export indicator had climbed 6.8 per cent in August and jumped 21.5pc last month, agribusiness economist Phin Ziebell pointed out in NAB Agribusiness' September Rural Commodities Wrap.
Beef and sugar, up 7.1 and 0.5pc and 0.1 and 4.2pc, were the only other major commodities listed in the wrap to record price increases both months.
By comparison, the NAB's Rural Commodities Index of 28 commodities was up just 1.5pc in August and, while not calculated for the whole of September at the time Farm Weekly went to press, was on track for a "moderate increase" last month.
The index covers wheat, barley, sorghum, rice, oats, canola, chick peas, field peas, lupins, wool, cotton, sugar, wine grapes, beef, lamb, pork, poultry, dairy, apples, bananas, oranges, mangoes, strawberries, broccoli, carrots, lettuce, potatoes and tomatoes
It is weighted according to the gross value of production of each industry.
"This steady increase (in Rural Commodities Index) masks discrepancies across commodities, with weakness in major grain markets offset by strength in red meat and a rebound in dairy prices," Mr Ziebell said in the wrap.
"Dairy has been a standout performer following considerable weakness over the past two years," he said.
"Rain across eastern Australia has put winter crops on track for a bumper season, although flooding and waterlogging in some areas is a real concern, as is frost damage in Western Australia.
"The Bureau of Meteorology's outlook is for a neutral to wetter-than-average finish to spring, which could pose some risk of quality downgrades depending on how late the rain persists.
"Good rainfall has continued to drive restocker interest in red meat, with cattle prices remaining at record levels and lamb defying the usual spring price drop as producers retain more lambs."
While the dairy industry has been under sustained price pressure, the rise in the export indicator reflected lower-than-anticipated supply from key export competitors like New Zealand and the European Union, Mr Ziebell said.
"Our (dairy) export indicator now stands at A$3908.70/tonne - five months ago it was below $3000/t," he said.
"While we still see some concern in China, a key export market, recent developments are clearly of benefit to the industry and we have raised our forecasts accordingly."
Even if prices remain at current levels, the NAB's forecast of an over-valued Australian dollar slipping back towards US70 cents by the end of next year, should help the industry, Mr Ziebell said.
He said improved international dairy auction results already had some farmgates influence with Eastern state's processor Murray Goulburn announcing a step-up to $4.46/kg in its milk solids price.
Competitors like Fonterra, at $4.75, and Warrnambool Cheese and Butter, at $4.80, generally already paid higher returns to farmers.
"(This) offers some scope for any further upside on global markets to be passed on to producers," Mr Ziebell said.
As well, a wet September meant dairy farmers' pasture paddocks were looking very good for the summer right across Australia.
In contrast, predictions of a 27.6 million tonne wheat harvest that could go as high as 29mt, a four-year global decline in US denomination wheat prices continuing "unabated", plentiful global supply and favourable shipping costs for low-cost Black Sea region producers led NAB to downgrade its outlook for wheat, he said.
Mr Ziebell said producers who had planted canola instead of wheat could see a "strong premium" this season and markets looked good for pulses like chick peas and lentils, particularly into India, but the bank remained "circumspect" on price.
Australia's export beef industry should expect to come under increasing price pressure from South America and the United States where low feed costs, particularly corn, were helping producers' competitiveness, he said.
The wrap also predicted lamb export values would fall 5.8pc next year due to market shrinkage, pork prices would remain stable and fruit prices might edge higher but be offset by easing vegetable prices. An easing Australian dollar would help wool export prices remain strong next year but cotton looked soft.
While the Australian economy grew at a year-ended rate of 3.3pc in the second quarter this year - the fastest pace since mid-2012, Mr Ziebell said the surge was due to government spending and "real" GDP (gross domestic product) was predicted to ease to 3pc next year, 2.8pc in 2017 and 2.6pc in 2018.