Home > El Nino continues to threaten but sectors look upbeat

El Nino continues to threaten but sectors look upbeat

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The Agribusiness Monthly report for June 2014 by agribusiness banking specialist Rabobank sees a lot of positives in various sectors but the El Nino threat continues to loom for global commodity markets.

Rabobank’s Agribusiness Monthly provides timely information and analysis on agricultural conditions, commodity price updates and commentary on the latest sectoral trends and developments.

Things look upbeat for beef exports, dairy production, grain, oil and sheepmeat prices, and the sugar market in Australia, though the global fertiliser market seems to be having a bearish outlook.

Beef exports for May have broken the highest monthly total and dairy production has finished strongly for the month. Australian grain prices remain firm despite global price weakness; oil prices are slightly higher on improving economic conditions; sheepmeat prices are forecast to remain strong as the supply tightens; while the persistent weather risk is providing support for sugar markets.

The El Nino effect

The El Nino alert remains in place, indicating at least a 70% chance of development in 2014. This means all farmers in the south-eastern regions of Australia are advised to have contingency plans to manage a prolonged dry period.

Food retail

Monthly growth in Australian retail sales continued to ease in April 2014, rising 0.2% against the preceding month. Subdued consumer confidence continues to show through in data in recent months, and household budgets remain constrained as wages in the economy grew at their slowest annual pace in Q1 2014 since the relevant series began in 1997.

Beef

Saleyard prices stabilised on average during the second half of May and into June as supply tightened. Positive autumn conditions throughout large parts of southern Australia have supported prices with good condition cattle coming to market.

Export demand continues to be strong and is expected to remain elevated throughout 2014 until seasonal conditions improve. May recorded the highest ever monthly beef and veal exports from Australia, breaking the record previously set in March 2014. Total boxed beef exports for the first five months of 2014 have increased 17% or 69,480 tonnes swt compared to the same period in 2013, mostly from strong US demand with exports increasing 38,823 tonnes swt year-on-year, to 123,300 tonnes swt. Further growth has been recorded in Indonesia, up 11,097 tonnes swt, Korea, up 9,523 tonnes swt and China, up 7,860 tonnes swt year-on-year.

Dairy

Milk production continues to finish the season strongly. Year-to-date output is down only 0.8% to 8 billion litres. In southern export-focused regions improved margins and good seasonal conditions have fuelled the strong finish to the season. In the past week southern producers have enjoyed further step-ups in farmgate milk prices with most now receiving above AUD 6.80/kgMS.

Grains and Oilseeds

Old crop prices have continued to diverge from global grains prices primarily due to the significant tightening of the domestic balance sheet. A dramatically smaller than average summer crop in northern NSW and southern Queensland in 2014 has accentuated wheat price support as sourcing grain along the east coast of Australia becomes increasingly difficult. Whilst the Australian wheat market has softened by 9% over the past four weeks, this is seen as relatively small given CBOT wheat prices have declined 14% over the same period.

Sheepmeat

Recent rain throughout large areas of eastern Australia has seen supplies tighten and prices rise accordingly. The eastern states trade lamb indicator increased 31% year-on-year, averaging AUD 5.90/kg cwt at the beginning of June. Mutton supply also eased with the national mutton indicator averaging AUD 3.88/kg cwt, first week of June, an increase of AUD 1.33/kg year-on-year. Lamb exports for May were the second highest on record, totalling 20,528 tonnes swt. Demand from China and the US continues to be very strong, with exports to China increasing 9% year-on-year to 3,854 tonnes swt and exports to the US increasing 12% year-on-year to 3,659 tonnes swt. A tightening of sheep supply saw mutton exports decline 12% month-on-month to 13,059 tonnes swt in May.

Sugar

For Australia, warm drier-than-normal conditions are expected in cane producing regions, which could impact the harvest. Right now, ABARES forecasts Australian sugar production in 2014/15 will total 4.4 million tonnes, up on the 4.2 million tonnes harvested in the previous year. For local sugar pricing, the stubbornly high AUD continues to erode export returns with the indicative sugar price trading around AUD400/tonne. The Indian monsoon will also be an important driver of Indian cane yields, and a drier-than-normal monsoon would drive cane and most likely sugar production lower.

Fertiliser

Farmers in Australia and New Zealand are seeing the benefit of the weaker global market prices. Most local suppliers of fertiliser have introduced price cuts in recent weeks. However, farmers should be mindful that international price volatility is expected to continue. The weaker tone across the global fertiliser complex has continued into June. The main driver for the weaker current price trend for urea and phosphate has been strong export activity from China coupled with a lull in import demand in key regions.

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