The NAB Rural Commodities Index* has continued upward momentum, increasing 1.4 per cent month-on-month in May, driven by rising prices for wheat, barley, canola and lamb.
The Index is now around levels last seen in February 2023, according to NAB’s June Rural Commodities Wrap released today.
NAB group economics associate director Lea Jurkovic says wheat is again the key driver of the Index’s climb.
“Wheat prices rose a little over 10 per cent in the month, as prices rallied on the back of poor seasonal conditions in Europe which weighed on global supply,” Ms Jurkovic says.
“Canola and feed barley prices also increased in May, rising 7.1 per cent and around 7.8 per cent in monthly average terms respectively.
“Trade lamb prices increased nearly 3 per cent month-on-month in May in monthly average terms. Prices rose despite high supply on the back of strong domestic demand.
“Cattle prices were little changed in May, rising nearly 1 per cent again in monthly average terms. Despite elevated slaughter rates and increased supply, export demand helped support prices.”
Ms Jurkovic says seasonal conditions were mixed across most of the country in May, with national rainfall 34.9 per cent below the long-term national average in the month but above average in New South Wales and Western Australia.
“The Bureau of Meteorology announced a La Nina watch in May, which means there is a roughly 50 per cent chance of a La Nina event developing later in the year,” Ms Jurkovic says.
As was widely expected, the RBA left the cash rate unchanged at 4.35 per cent at its June meeting.
“NAB continues to expect the RBA will remain on hold in the near-term, with the question being how long rates will need to remain at their current restrictive level to see inflation back into the target range,” Ms Jurkovic says.
“We are still pencilling in a first rate cut in November, but the exact timing is heavily data dependent.
“We continue to see the AUD appreciating against the USD in the second half of 2024 and into 2025. The currency is expected to rise to around US69c by the end of this year.
“The outlook depends on a broader softening in the USD as the US economy slows and the US Federal Reserve begins to ease monetary policy.”
The Australian economy is experiencing a period of weak growth, and GDP grew just 0.1 per cent q/q (1.1 per cent y/y) in the first quarter of 2024.
Ms Jurkovic says NAB expects Q2 to remain soft overall, but to see a pickup in the second half of this year, which will ease pressures on households and see consumption growth rebounds.
Despite slowing growth, the labour market has remained resilient. Strong employment growth saw the unemployment rate tick down to 4.0 per cent in May.
She says inflation remains elevated globally although has edged lower in advanced economies.
Some central banks have seen enough progress on inflation to begin cutting rates. In early June, the Bank of Canada and the European Central Bank both cut policy rates by 25 basis points.
“We expect the US Fed and the Bank of England to also begin cutting rates later this year and continue into next year,” she added.
“The RBA left our cash rate unchanged and we continue to expect the RBA will remain on hold in the near-term, with the question being how long rates will need to remain at their current restrictive level to see inflation back into the target range.
“We are still pencilling in a first cut in November, but the exact timing is heavily data dependent.”
In currency trends Ms Jurkovic sees the AUD appreciating against the USD in the second half of 2024 and into 2025.
She says the currency is expected to rise to around US69c by the end of this year.
“The outlook depends on a broader softening in the USD as the US economy slows and Fed begins to ease monetary policy,” she says.
* The NAB Rural Commodities Index is based on the price and production data for 28 commodities and is weighted by their relative size in Australia’s agricultural sector.
