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Rabobank’s latest Agribusiness Review for Australia and New Zealand

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Agribusiness banking specialist Rabobank  presents the latest Agribusiness Review prepared by the bank’s Food & Agribusiness Research and Advisory division (FAR) covering the Australian and New Zealand agricultural conditions.

The monthly commentary by Rabobank’s FAR division includes climatic conditions across the two regions, world economy, currency markets, global wheat markets, beef prices as well as international dairy and fertiliser prices.

Seasonal outlook

Australia had drier-than-normal conditions in May while New Zealand got a cold snap and some snowfall in the South Island. Winter temperatures and soil moisture levels are at reasonably normal levels across most of New Zealand.

The latest Australian seasonal outlook favours wetter-than-normal conditions across most of the east coast, and drier-than-normal conditions throughout southern Western Australia and South Australia.

Global economy

The European sovereign debt crisis coupled with a slowdown in the US economic recovery and some weaker-than-expected economic data from Asia have eroded market confidence. The Reserve Bank of Australia (RBA) cut the official cash rate by 25 basis points in June citing modest domestic growth and an uncertain international environment.

In New Zealand, the trade balance in April was a surplus of NZD355 million, well below the NZD1,158 million surplus of April 2011.

Currency markets

The last month saw both AUD and NZD currencies retreating against the US dollar. Global risk sentiment will likely dictate future direction of currency markets. Exporters are expected to benefit with confidence set to remain weak in the short-term.

Global wheat markets

A short-lived rally in global wheat markets in mid-May in response to the mounting concerns about the dry conditions in the Black Sea Region and the US Plains was followed by a sell-off across global financial markets, which coupled with a weaker corn complex took a toll on wheat prices over the remainder of the month.

In Australia, attention is turning to the new crop prospects, and recent improvements in upper layer soil moisture profiles throughout key regions have kick-started the new season.

Beef prices

Local beef prices continued to soften in Australia and New Zealand by small margins but a weakening of currencies in both markets should help support local farmgate prices. US beef markets have continued to firm as tight supply combines with improved summer demand.

Dairy prices

Most international dairy prices continued to trend down in USD terms throughout May. With inventories continuing to build, it will take a few months for the market to tighten. Australian and New Zealand farmers are bracing for a fall in farmgate prices in the 2012/13 seasons.

Fertiliser prices

Most global fertiliser prices (in USD terms) were softer through May, driven largely by urea markets. With spring planting demand for fertiliser now complete in the US, markets are seeking price signals from the upcoming seasonal demand in India and South America.

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