“EXTREME” grain prices have helped push the National Australia Bank (NAB) Rural Commodities Index for September to its biggest monthly gain in almost eight years.
The index, which tracks 28 weighted agriculture commodities, rose 6.5 per cent last month, its biggest monthly increase since December 2010, according to the latest NAB Rural Commodities Wrap released on Monday.
The main driver was an Australian Securities Exchange quoted wheat price which was the outstanding commodities performer, jumping 22.8pc to average $430 per tonne following rises of 5.9pc and 3.3pc in August and July, according to the NAB report.
Also, after a “disconnection with international benchmarks”, canola prices have been high and as much of the national crop has been cut for hay, premiums should remain throughout summer, it said.
As the main grains producing State, WA benefited most with its State NAB rural commodities index rising 10.8pc – its biggest gain since mid-2012.
WA’s index increase compared to South Australia up 7.5pc, New South Wales and Queensland up 6.5pc and 5.1pc respectively despite the drought, Victoria up 3.9pc and Tasmania 2.8pc.
Weakness in global dairy trade has seen the main dairy producing States’ indexes, Tasmania particularly and to a lesser extent Victoria – lag behind the rest.
With significant domestic demand for grains in the Eastern States to feed livestock and a prospect of very poor winter crop harvests there, grain growing areas easily outperformed cattle areas last month, according to NAB.
This was despite “resilient” cattle prices and an Eastern Young Cattle Indicator (EYCI) up 6.1pc irrespective of the tough conditions, the report stated.
It predicted the EYCI will remain in the mid 400-500 cents per kilogram range over coming months with the only caveat possible continued high levels of United States beef production over-riding drought-influenced domestic stocking levels.
NAB Agribusiness economist Phin Ziebell said challenging seasonal conditions in the east had seen domestic grain prices “hit extreme levels”.
“Domestic grain premiums are banking on very limited eastern Australian supply and export,” Mr Ziebell said.
“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,” he said.
The national wheat production forecast is down slightly this month from 18.1 million tonnes to 17.4mt, Mr Ziebell said, reflecting downgrades in WA (with below-average September rainfall and some frost damage) while Victoria and South Australia both experienced a very dry and frosty September.
“That said, we still anticipate WA will deliver an above-average result,’’ he said.
Most of the Wheatbelt received up to 25 millimetres of rain at the weekend and areas in the centre and east received up to 50mm, setting up what growers have described as an ideal finish.
“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,” Mr Ziebell said.
“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.”
While cattle prices are holding up quite well, lamb prices had eased, he said.
“After a big increase in late August, the National Trade Lamb Indicator has come back to a similar level as this time last year, sitting at 697 cents a kilogram,” Mr Ziebell said.
“Wool has seen some weakness too, although the EMI (Eastern Market Indicator) is back above 2000c/kg.”
The impact of lamb and wool price movements on the national index largely cancelled each other out last month with lamb prices easing 1.7pc and wool prices rising 1.7pc, according to the NAB report.
Similarly, last Friday’s Rabobank RaboResearch Food and Agribusiness monthly Agribusiness report for October predicted strong grains and oilseed prices will offset lower yields for some growers this harvest.
APW wheat values at Kwinana, Adelaide and Geelong ports remained at or near 10-year highs and canola in short supply could see its price exceed $600/t, the Rabobank report said.
Playing into the domestic situation was Russia’s wheat yield expected to return to trend this year, it said.
It pointed out the Chicago Board of Trade wheat price had opened in October at US540 cents a bushel and Rabobank expected it to remain about that price through the first quarter 2019.
The report also predicted Australia’s wheat harvest will drop below 19mt due to the driest September on record and the impact of widespread frosts.
It said frost losses in WA could be more than one million tonnes.
p For more on the grains industry check out the special Grains & Harvest publication in this week’s Farm Weekly.
