Mixed outlook for Australian agri: NAB

National Australia Bank expects cattle prices to fall further in 2017 due to softening demand abroad but is optimistic that weaker Australian dollar will help exports.

The outlook for the Australian agri sector is mixed with beef prices expected to fall further in 2017, while lamb and mutton prices are expected to remain stable or rise moderately, National Australia Bank said in its latest rural commodities report.

The bank noted in its February Rural Commodities Wrap that after “a stellar two year run of rising prices […] the international beef outlook is now much weaker than in 2014 and 2015.” The reason for this is that while the US primarily drove demand for the Australian cattle industry due to high corn prices and drought in 2011, corn is once again cheap and plentiful and drought conditions have largely dissipated.

NAB further expects increasing competition to come from South American producers in the coming years, contributing to the downward price trend.

The outlook for lamb and mutton is brighter, while retail poultry prices are expected to remain stable.

“Export markets for lamb are reasonably diversified, with the US and China accounting for a substantial volume,” according to the report. “However, the Middle East remains a very important market, particularly for mutton and live sheep.”

As for winter crops, NAB foresees drier weather conditions having a negative impact on the sector, in contrast with the record-breaking 35 million tons of wheat harvested this past season.

“The Bureau of Meteorology’s three-month outlook [February-April] points to early autumn having a re-run of 2016, with a dry to very dry start to the wheat season in the east but prospects of a good break in the west,” NAB stated in the report.

“More concerning is the Bureau’s long range El Niño outlook for this year,” NAB added, noting that El Niño events tend to bring hotter and drier conditions on average to eastern and northern Australia.

As for the dairy sector, 2016 proved to be a difficult year, with December deliveries declining 4.5 percent year-on-year, primarily due to extremely dry conditions at the beginning of 2016 in key dairy regions and steep cuts to farmgate prices.

“Absent further increases at farmgate, it is unlikely that production will recover this season,” NAB stated.

Aside from increasing competition and weather conditions, price trends will also depend on the course of the Australian dollar. NAB foresees a gradual decline in the Australian dollar to US dollar exchange rate in 2017, from A$0.77 in the first quarter to A$0.70 by year-end.