Rural Bank

Insights Update February 2020

Commodity updates

• Cattle………………. 2

• Cropping …….……. 3

Dairy……………….. 4

Horticulture………... 5

Sheep……………… 6

Wool……………….. 7

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Cattle February 2020

Commodity Overview

• Beef prices are likely to remain supported, particularly if re-stocker activity is encouraged by further rainfall. • The outbreak of Coronavirus has the potential to place downwards pressure on prices if it remains out of control

for an extended period of time.

The global outbreak of novel Coronavirus has weakened

global beef market sentiment. If the outbreak drags on for

an extended period of time, the negative effects on the

Chinese economy and the restriction of supply chains could

result in downwards pressure being placed on Australian

and global beef prices.

However, the negative impacts of Coronavirus on Chinese

demand for Australian beef is expected to be mitigated by

the significant requirement for red meat to offset reduced

pork availability as a result of African Swine Fever on the

Chinese pig herd.

Local cattle prices are expected to be driven predominantly

by local conditions; any further rainfall is likely to support

Australian cattle prices.

Without rainfall, the weaker Australian dollar will provide a

level of support, coupled with lower year-on-year

production and demand in export markets. Cattle prices

on the east coast surged over January with the eastern

young cattle indicator (EYCI) rising 23.3 per cent.

Rainfall in parts of the east coast prompted increased re-

stocker activity and led many producers to hold stock back

from sale yards. The western young cattle indicator

(WYCI) was subdued in comparison as dry conditions

persisted.

Over the next six months the Australian cattle herd is

expected to fall to the lowest levels in almost 30 years.

Supply of cattle at saleyards could fall further if meaningful

rainfall is able to lift re-stocker confidence.

0

20

40

60

80

100

120

140

160

180

Jan-1

7M

ar-

17

May-1

7Jul-17

Se

p-1

7N

ov-1

7Jan-1

8M

ar-

18

May-1

8Jul-18

Se

p-1

8N

ov-1

8Jan-1

9M

ar-

19

May-1

9Jul-19

Se

p-1

9N

ov-1

9Jan-2

0

'000 h

ead

Eastern states weekly cattle slaughter

300

350

400

450

500

550

600

650

700

750

Jan-1

7M

ar-

17

May-1

7Jul-17

Se

p-1

7N

ov-1

7Jan-1

8M

ar-

18

May-1

8Jul-18

Se

p-1

8N

ov-1

8Jan-1

9M

ar-

19

May-1

9Jul-19

Se

p-1

9N

ov-1

9Jan-2

0

Ac/k

g c

wt

Young cattle indicators

WYCI EYCI

Sources: Meat & Livestock Australia

Cropping February 2020

Commodity Overview

• China’s purchase of 1 million tonnes of wheat took the global grain market by surprise, with an estimated 300-500 thousand tonnes coming from Australia.

• Sorghum production forecast to be 85 per cent below average despite some planting after January rainfall, increasing pressure on wheat and barley to satisfy domestic demand.

• Tensions between the United States and Iran has potential to significantly impact global grain markets. Middle Eastern countries on average account for close to 20 per cent of combined global wheat and barley imports.

• Offshore markets remain optimistic despite uncertainty caused by geopolitical tensions, reduced Russian export estimates, and deteriorating US winter wheat crop conditions.

Offshore wheat values are expected to remain flat for the

coming quarter. United States winter wheat plantings are

estimated to be close to the lowest on record, and

suggestions Russia may restrict wheat export volumes.

Despite this uncertainty, global wheat production is

forecast to increase 4-5 per cent year-on-year.

Australian cereal prices are expected to hold at current

levels, maintaining premiums to international markets.

There is potential upside to prices should export pace

remain at current levels and domestic users increase bids

to lock in supply. Given Australian grain values are already

close to the highest globally, increases are expected to be

limited to 3-5 per cent.

Dry conditions saw Australia’s winter crop harvest

wrapped up nearly a month earlier than usual. National

wheat production was 39 per cent below average, in part

due to Western Australian wheat production declining 48

per cent year-on-year.

Improved growing conditions in Victoria resulted in a 17

per cent increase in national canola production year-on-

year. Despite the increase, canola production was 26 per

cent below average.

January rainfall provided enough optimism for some to

plant a very late sorghum crop, however production

estimates continue to decline. Current estimates suggest

the national sorghum crop will be 85 per cent below

average, the lowest production total in over twenty years.

Despite elevated local prices, demand from international

buyers of Australian grain remains strong. Whilst ‘inelastic’

demand (grain that is normally sourced from Australia and

can’t be easily substituted by grain from another origin)

has provided a steady base of exports, there have been

some surprises.

China purchased 1 million tonnes of wheat from various

origins, with estimates 300 to 500 thousand tonnes will be

supplied by Australia from March to April. China imported

a total of less than 200 thousand tonnes of Australian

wheat last season.

Similar tonnage was anticipated for the current season,

however the recent purchase has forced a rethink of

estimated total of 8 million tonnes Australian wheat

exports. Given low production, Australia has limited ability

to take advantage of Chinese wheat demand unless it is

sustained through to the new crop early next year.

200

300

400

500

600

700

800

900

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

$A

/to

nne

Geelong canola prices

100

150

200

250

300

350

400

450

500

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

$A

/to

nne

Kwinana feed barley and Port Adelaide wheat prices

APW Wheat Feed barley

Sources: Profarmer Australia

Dairy February 2020

Commodity Overview

• Uncertainty regarding the impact of Coronavirus on the Chinese economy is driving some volatility in global dairy markets.

• Global dairy supply is forecast to increase, as increases in the United States, European Union and New Zealand offset reductions to Australian milk production.

The outbreak of Coronavirus has created some uncertainty

in the Global Dairy Trade (GDT) market, reflecting concerns

around the economic impact of the virus on Chinese and

global markets. Fortunately, however, underlying Chinese

demand for dairy products appears to have remained

steady.

Global dairy supply is forecast to be one per cent higher

this season, led by growth in United States and European

Union supply.

New Zealand production is also forecast to increase, albeit

only 0.4 per cent year-on-year. Australian production

continues to trend lower year-on-year and is forecast to

finish the season 3-5 per cent lower, largely due to a

reduction in herd size.

Saputo have announced a step up to their farmgate milk

price, lifting their farmgate milk price in southern milk region

to $7.05/kg milk solids up 10c/kg. The declining Australian

milk pool continues to drive heightened competition

between processers to secure supply.

The weaker Australian dollar is favourable for local values,

improving the relative competitiveness of Australian dairy

exports in global markets.

The winter grain harvest has alleviated some pressure from

local feed markets, and feed prices are expected to remain

flat for the coming months. Increased rainfall may lead to a

slightly softer tone if significant and widespread rains were

to eventuate.

2,500

3,500

4,500

5,500

6,500

7,500

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Se

p

Oct

Nov

Dec

A$/t

onne

Cheddar

2018 2019 2020

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jan

Feb

Mar

Ap

r

May

Jun

Jul

Au

g

Se

p

Oct

Nov

Dec

A$/t

onne

Skim milk powder

2018 2019 2020

Sources: Dairy Australia, Global Dairy Trade

Horticulture February 2020

Commodity Overview

• Increased berry production due to favourable summer growing conditions is expected to see prices soften in coming months.

• Onion prices remain high as supply comes under pressure from drought and continued export demand.

Ongoing impacts from bushfires continue to present new

challenges for horticulture. The loss of millions of bees is

expected to impact the pollination of tree crops such as

almonds, apples and pears in 2020.

Drought was already a problem for the country’s apiarists,

the addition of bushfires wiped out the bees’ food source

which leads apiarists to substitute flowers with sugar syrup,

a temporary solution which isn’t conducive to hive

expansion. Supply of fruit has the potential to be lower as

a result which will likely lead to higher prices later this year.

Berry prices were softer in January as favourable ripening

conditions led to an increase in supply of strawberries from

Victoria and raspberries from Tasmania. Supply of

strawberries is expected to peak in coming months, this will

likely lead to further price declines in February. Tasmanian

raspberry prices were down $4.64/kg on the same time last

year.

Growing season conditions improved significantly in

December and January with a run of mild weather leading

to increases in yield and quality. This is expected to

prolong the season and keep pressure on prices.

Strong export demand and a smaller onion harvest will

continue to support onion values during the coming

months, despite seasonal influx of supply.

Bulb vegetable prices have remained elevated driven by

drought conditions in key onion growing areas of South

Australia and Victoria.

Export markets continue to compete for supply, seeing

prices rise in January to 50.5 per cent higher compared to

the same period in 2019.

50

60

70

80

90

100

110

120

130

140

Jul

Au

g

Se

p

Oct

Nov

Dec

Jan

Feb

Mar

Ap

r

May

Jun

May '18 =

100

Bulb vegetable price index**

2017-18 2018-19 2019-20

0

20

40

60

80

100

120

140

160

Jul

Au

g

Se

p

Oct

Nov

Dec

Jan

Feb

Mar

Ap

r

May

Jun

January

'17 =

100

Berry price index*

2017-18 2018-19 2019-20

Sources: AusMarket, ABS. *Berry price index includes raspberries, strawberries, blackberries and blueberries.

**Bulb vegetable price index includes onion, leek, spring onion, fennel, garlic and shallots.

Sheep February 2020

Commodity Overview

• Lamb and sheep supply to tighten as rainfall allows producers to retain stock.

• Demand strengthening as re-stockers add to already competitive markets.

• Prices for lamb and mutton to be well supported by tighter supply and stronger demand.

Lamb and sheep supply are expected to tighten as recent

rainfall and a more optimistic outlook will give many

producers in eastern states confidence to retain more

stock.

While producer intentions to begin flock rebuilding are

growing, follow up rainfall is still required to fully restore

feed and water supplies. Higher prices may draw more

lambs onto the market, but low flock numbers will temper

any attempts to lift supply in response.

Demand for lambs and sheep in saleyards could

strengthen if follow up rain in February encourages more

re-stocker activity in markets. This would add to the already

strong competition amongst processors seeking to meet

strong export demand, particularly from China.

The combination of tightening supply and strengthening

demand will support high prices in eastern states,

continuing the upwards trend which characterised both

lamb and mutton markets in January.

National indicators increased for all lamb categories in

January, with re-stocker lambs recording a significant lift

of 22.5 per cent. Prices in Western Australia are likely to

remain subdued after a lack of decent rainfall kept prices

lower year-on-year in January.

The longer-term outlook for Australian lamb and sheep

markets remains positive with lower supply compared to

2019 and robust export demand supporting higher prices.

0

100

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300

400

500

Jan-1

7M

ar-

17

May-1

7Jul-17

Se

p-1

7N

ov-1

7Jan-1

8M

ar-

18

May-1

8Jul-18

Se

p-1

8N

ov-1

8Jan-1

9M

ar-

19

May-1

9Jul-19

Se

p-1

9N

ov-1

9Jan-2

0

'000 h

ead

Eastern states weekly slaughter

Lamb Sheep

200

300

400

500

600

700

800

900

1000

Jan-1

7M

ar-

17

May-1

7Jul-17

Se

p-1

7N

ov-1

7Jan-1

8M

ar-

18

May-1

8Jul-18

Se

p-1

8N

ov-1

8Jan-1

9M

ar-

19

May-1

9Jul-19

Se

p-1

9N

ov-1

9Jan-2

0

Ac/k

g c

wt

Lamb and mutton price indicators

ESTLI Mutton

Sources: Meat & Livestock Australia

Wool February 2020

Commodity Overview

• The Australian wool market will remain sensitive to the further spread of Coronavirus.

• The AWEX EMI is likely to have a softer tone over the next month as the market watches for developments onthe Coronavirus outbreak.

Australian wool markets remained volatile over January

with day-on-day declines in the eastern market indicator

(EMI) which fell 20 per cent below year ago levels, with

further downside potential.

Wool markets have been reactive to Coronavirus and

speculation as to the impact on the Chinese economy.

Market estimates indicate, if the impact of Coronavirus on

the economy was to mirror that of SARs, China’s

economic growth outlook could fall from 5.8 per cent in

2020 to 4.3-5.3 per cent.

Approximately 75 per cent of Australian wool is exported

to China, hence this market will be susceptible to a

prolonged slowdown in the Chinese economy.

Until there is some stability around the outbreak of the virus

the market is likely to track sideways to slightly lower,

taking a “wait and see” approach.

Summer shearing has caused a relative over supply of high

micron wool to enter the market, which is expected to

cause some weakness in coarse wool prices.

Recent rainfall over parts of New South Wales and

Queensland could bode well for wool production.

Production is still expected to fall year-on-year, however

there are signs that conditions are beginning to improve. If

further rainfall eventuates, wool production is unlikely to fall

by as much as the 9 per cent year-on-year that was

forecast for 2019/20 before conditions began to improve.

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15

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25

30

35

40

45

50

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

'000 t

onnes g

reasy

Australian wool production

1000

1200

1400

1600

1800

2000

2200

Jan-1

7

Ap

r-1

7

Jul-17

Oct-

17

Jan-1

8

Ap

r-1

8

Jul-18

Oct-

18

Jan-1

9

Ap

r-1

9

Jul-19

Oct-

19

Jan-2

0

Ac/k

g c

lean

AWEX Eastern Market Indicator

Sources: Australian Wool Exchange, Australian Wool Testing Authority

This report is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Rural Bank, a Division of Bendigo and Adelaide Bank Limited, ABN 11 068 049 178 AFSL/Australian Credit Licence 237879, makes no representation as to or accepts any responsibility for the accuracy or completeness of information contained in this report. Any opinions, estimates and projections in this report do not necessarily reflect the opinions of Rural Bank and are subject to change without notice. Rural Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth therein, changes or subsequently becomes inaccurate. This report is provided for informational purposes only. The information contained in this report does not take into account your personal circumstances and should not be relied upon without consulting your legal, financial, tax or other appropriate professional.

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About Rural Bank Rural Bank is a division of Bendigo and Adelaide Bank Limited and provides exceptional financial services, knowledge and leadership for Australian farmers to grow.

About the research Rural Bank provides a monthly analysis of production and pricing trends for Australian agriculture. Focusing on cattle, cropping, dairy, horticulture, sheep and wool, the Update provides producers with a timely overview of current trends and an outlook for the coming months

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