A rapidly depreciating Australian dollar has provided a major boon for agricultural commodities in the past two years.
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But NAB agribusiness economist Phin Ziebell warned farmers at the South East Field Days breakfast on Friday, prices in the short-term would more closely track global supply and demand.
“From 2014 the dollar has come off significantly, dipping below US70c in January this year, which has been a huge advantage for producers as exporters, pushing prices up,” he said.
“The reality is people cannot look to further depreciation to support farmgate prices.”
NAB is forecasting the currency to bottom out at US67c before rising to 73c next year.
Despite better economic signs, the United States Federal Reserve was tightening rates at a slower rate than expected, which had meant the $A had appreciated since January this year, trading in the mid-US70c range.
Australian herd and flock rebuilding was likely to support continued strong livestock prices, but Mr Ziebell said there was “little upside” in the short-term for grains.
Young cattle prices were likely to remain at near-record highs throughout 2016 as producers restocked, but there was some risk for cattle traders with increased US and South American supply.
“Domestic prices are at record levels, nearly double from where they were two years ago,” Mr Ziebell said.
“But if you are a feedlotter or abattoir, the story is more complicated with US export prices already dropping slightly.”
Mr Ziebell said it was fortunate the US had needed increased volumes of beef during Australia’s drought-induced herd sell-off, with its own herd hit by a widespread drought in 2011-13.
But this was “well and truly” passed, except for California, Nevada and Washington, which were not major cattle-producing states.
Low US corn and soybean prices had put large numbers of cattle on feed.
Sheepmeat prices were “trending higher”, but the challenge could be servicing export markets, with Meat & Livestock Australia forecasting supply could drop 7-10pc.
Mr Ziebell said Australian consumers were eating less beef and lamb, but long-term export demand for “rangeland red meat” was strong.
Failed monsoon rains crops in India had helped pulse prices to skyrocket, but Mr Ziebell said it was an unknown if this would happen again. Global wheat stocks were also at very high levels.
“Australia has been insulated from most of the wheat price drop by a lower $A,” he said. “The question for this season will not be farmers deciding which crop to plant, but whether it is wet enough to plant.”
Record low interest rates continue to be a huge advantage and NAB did not anticipate any lift until late 2017.
“The market has already priced in another rate cut, but the RBA is reluctant with fears about the strength of the property market,” Mr Ziebell said.
