Wool top commodity performer

07 Apr, 2017 10:29 AM
Wool was the best performing commodity in the first quarter of this year, according to National Australia Bank Agribusiness' March Commodities Wrap.
The price upturn enjoyed by wool producers has continued despite recent US dollar (USD) weakness
Wool was the best performing commodity in the first quarter of this year, according to National Australia Bank Agribusiness' March Commodities Wrap.

WOOL was the standout commodities performer in the first quarter this year and, thanks to a “bump” in grain prices, WA was best performing commodities State, according to National Australia Bank (NAB) Agribusiness.

Its March Rural Commodities Wrap showed WA and South Australia where the only States where the NAB Rural Commodities Index – a basket of 28 agricultural commodities weighted by relative production size – rose in February and March.

Wool was the only commodity to increase price each month – 3.3 per cent in January, 2.5pc in February and a jump of 6pc last month, according to NAB Agribusiness.

Record wool prices were recorded last month at the Perth, Melbourne and Sydney auction centres.

NAB said the outlook for wool remained strong, particularly with the predicted softening of the Australian dollar to 70 cents against the United States dollar in the third and fourth quarters this year.

Wool is traded in US dollars.

The national wool clip was also predicted to increase this year, temporarily arresting a long decline in production.

Dairy products, on the other hand, were the only major commodity to drop in price each month of the quarter - down 1.1pc in January, 5.6pc in February and plunging 11pc last month.

An increase in optimism towards the end of last year, driven by rising global prices and good seasonal conditions, disappeared during the quarter, NAB said.

The situation was unlikely to improve soon unless farmgate prices rose, it said.

Australia’s dairy industry, NAB said, had been much slower to recover from last year than New Zealand’s and latest data indicated New Zealand dairy production was beating expectations and putting pressure on prices.

New Zealand is the world’s largest dairy exporter.

NAB Agribusiness economist Phin Ziebell highlighted the differences in performance between wool and dairy.

“The price upturn enjoyed by wool producers has continued despite recent US dollar (USD) weakness,” Mr Ziebell said.

“Wool is quite sensitive to currency movements and our expectations of a lower Australian dollar (AUD) this year point to further upside.

“It’s a different story for the dairy industry, with prices giving up more than a third of their gains over the second half of last year.

“Low farmgate prices have led to lower milk production and the industry finds itself in something of a catch-22, as falling milk deliveries are denting processor revenue which impedes the processors’ ability to offer the higher prices needed to boost raw milk production.”

Mr Ziebell said wheat also faced some uncertainty, with prices expected to fall on the strength of the AUD in the second quarter, but increase by up to 12pc in AUD terms by the end of the year.

But significant price increases in USD terms “remain unlikely”, he said.

“Global markets recently showed some positive signs, but Australian prices have given up most of their gains from early March.

“Global wheat inventories remain extensive and the US Department of Agriculture upgraded its assessment of global production last month.”

Predicted drier than average conditions across most of Australia for autumn and winter, with a possibility of El Niño conditions by winter, meant the 2017-18 wheat crop was unlikely to match the record 35 million tonnes harvested for the 2016-17 season, NAB said.

Other grains faced a similar outlook, it said, with strong global supply keeping prices down.

Canola prices were holding up better than others ahead of expected larger plantings this month, it said.

Chick peas were likely to remain more expensive than alternative crops such as field peas and lupins this season, with prices returning to about $800 a tonne because of more favourable conditions in India after two poor monsoon seasons.

Even if El Niño drought conditions reduced Indian production, chick pea prices were unlikely to return to $1200/t, NAB said.

It predicted cattle prices would continue to slide after a two-year run and may be down 30pc on their high last August by the September quarter.

A dry autumn and winter may see restocker interest evaporate, but China’s suspension of Brazilian beef imports could open opportunities, it said.

Lamb prices had surged, paused and then resumed their upward trend for the quarter, NAB said.

Constrained supply had been a major driver of improved prices, it said, but expected drier conditions may make flock rebuilding “less enticing”.

The wrap indicated NAB Agribusiness expected lamb prices to remain stable this year.



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