Restocker demand warning

Strong restocker demand driven by a national cattle herd at 25-year lows and producers looking to rebuild in response to improved seasonal conditions saw the Eastern Young Cattle Indicator reach a record high of 772¢/kg in mid-June.

While buying activity is expected to continue as long as it keeps raining, NAB Agribusiness economist Phin Ziebell outlined substantial risks for the sustainability of cattle prices amid a global pandemic, in the latest NAB Rural Commodities Wrap.

He said demand for Australian beef in three of Australia’s largest beef export markets — South Korea, Japan and China — was expected to remain subdued while the COVID-19 pandemic continues.

Mr Ziebell, pictured, also said processor capacity was likely to be an ongoing wildcard if COVID-19 continues unchecked, particularly in Brazil and the US, with US domestic beef supply disrupted by outbreaks at processors.

Mr Ziebell said while the strength in the restocker market was high amid improved seasons in many areas, Australia’s cattle market could not remain detached from global fundamentals forever.

“With Australian cattle prices moving in the opposite direction to beef prices globally, prices will likely fall once restocker demand is met,” he said.

Agricultural markets have proved a mixed bag recently, with the NAB Rural Commodities Index recording a slight drop of 3.3 per cent in May.

“Global wheat prices have softened due to a stronger supply outlook, while the domestic basis has fallen in response to the likelihood of a large winter crop off the back of improved seasonal conditions,” Mr Ziebell said.

“NAB expects domestic feed grain prices to continue to soften should favourable seasonal conditions continue.”

Sustained sheep prices are also sitting at near record highs on restocker demand and improved seasonal conditions.

The National Trade Lamb Indicator remains buoyant in the high 800¢/kg range.

“Ongoing weakness across fibres, sugar and more recently dairy (particularly cheddar), a function of weak global demand fundamentals and a largely recovered AUD, is concerning,” Mr Ziebell said.

“Cotton prices remain under pressure and the wool market is in dire straits with the Eastern Market Indicator sitting at $11.10/kg.

“Global Dairy Trade auctions results have been mixed in USD terms, with the higher Australian dollar putting pressure on local prices, although prices are generally reasonable given global events.”

Fruit and vegetable prices were more stable in May as supply remains mostly strong.

Fruit fell 0.2 per cent after gaining 10.5 per cent in April, while vegetables dropped 1.3 per cent.

The Bureau of Meteorology’s three-month outlook to September points to a wet winter and early spring across most of the country, although the WA wheatbelt is forecast to be average and parts of Victoria, South Australia, and Tasmania below average.

The AUD has rallied from its lows in April and is currently sitting in the high USD0.60s, with NAB forecasting an increase to USD0.72 and USD0.75 by the end of 2020 and 2021, respectively.

To read the report, visit business.nab.com.au/nab-rural-commodities-wrap-june-2020