Commodities

Cattle…………… …….

2

Cropping……….. 3

Dairy……………. 4

Horticulture…….. 5

Sheep….………. 6

Wool……………. 7

Rural Bank

Insights Update September 2020

While domestic factors are expected to remain supportive

of high cattle prices, growth will be slowed by headwinds

in global markets. Chinese demand for Australian beef

has weakened with export volumes in August 55 per cent

lower year-on-year. Chinese beef imports have increased

year-on-year with significant growth in imports from South

American origins.

Robust demand from the United States for Australian beef

could also weaken as the summer grilling season comes

to an end and local production increases. In addition to

weaker demand and increased competition, the

appreciation of the Australian dollar is expected to reduce

the competitiveness of Australian beef.

These headwinds have weighed on heavy steer prices

and prevented this indicator showing the same growth as

the EYCI.

The peak for the EYCI may depend on how well the

national heavy steer indicator holds up to global

headwinds and ensuring the current EYCI premium of 15

per cent over heavy steers does not open up much further.

Commodity Overview

• Australian cattle prices are expected to steadily push further into record territory during spring, driven by strong restocker demand and tight domestic supply.

• The strength of domestic market factors is expected to help the market largely resist headwinds from reduced competitiveness in export markets from an appreciating Australian dollar and competition from other suppliers in key export markets.

• Beef demand remains subdued by COVID-19 restrictions on foodservice outlets with an uncertain outlook that hinges on restrictions easing or tightening in key markets.

The eastern young cattle indicator (EYCI) is expected to

steadily climb towards 800c/kg during spring after reaching

a new record high of 788c/kg in late August and is currently

56 per cent higher year-on-year. A steady decline in weekly

slaughter rates and strengthened demand from restockers

in response to improved rainfall and a favourable rainfall

outlook drove the steady climb in the EYCI in August and

both factors are expected to continue to support higher

prices through spring.

A low cattle herd and an increased focus on herd rebuilding

contributed to further tightening of supply in August. The

average weekly eastern states cattle slaughter in August

was 10.6 per cent lower than July and 27.8 per cent lower

than August 2019. Tight supply is expected to continue to

be a key trait of Australian cattle markets. Cattle slaughter

is expected to remain 27 per cent lower year-on-year for

the remainder of 2020.

Improved rainfall in August and a greater than 80 per cent

chance of above median rainfall in eastern Australia is

expected to produce an abundance on pasture and

continue driving strong competition among restockers for a

reduced supply of young cattle.

Source: Meat & Livestock Australia *EYCI and WYCI data between 26/3/20 and 2/6/20 is unavailable due to MLA suspending reporting on most price indicators during this period.

2

300350400450500550600650700750800850

Jan-1

8M

ar-

18

May-1

8

Jul-18

Se

p-1

8

Nov-1

8

Jan-1

9M

ar-

19

May-1

9

Jul-19

Se

p-1

9

Nov-1

9

Jan-2

0

Mar-

20

May-2

0

Jul-20

Se

p-2

0

Ac/k

g c

wt

Young cattle indicators*

WYCI EYCI

0

20

40

60

80

100

120

140

160

180

Jan-1

8

Mar-

18

May-1

8

Jul-18

Se

p-1

8

Nov-1

8

Jan-1

9

Mar-

19

May-1

9

Jul-19

Se

p-1

9

Nov-1

9

Jan-2

0

Mar-

20

May-2

0

Jul-20

Se

p-2

0

'000 h

ead

Eastern states weekly cattle slaughter

to import milling quality wheat.

Of the three largest wheat producing nations (China,

Russia and India), all are expecting year-on-year

production increases, however China and India consume

the majority of production domestically. Whilst Russia has

been the world’s largest wheat exporter in the past three

years, most Russian wheat is generally of lower quality

and not suitable for milling purposes which may provide

opportunity for high quality Australian wheat exports in the

coming season.

World wheat prices reached four and a half month highs

in early September; however increases were principally

driven by a lower US dollar rather than global supply and

demand factors and has been somewhat offset in

Australian dollar terms by a strengthening Australian

dollar. With export demand flat as importers turn to

Northern Hemisphere crops, local prices are expected to

be guided by domestic influences.

Most domestic end users have secured forward supply

until the new crop is available. Without strong export or

domestic demand and with current prices around $100 per

tonne below season highs, growers still holding on to

stock are reluctant sellers creating, a stagnant market.

Prices are expected to remain flat to 10 per cent lower in

the coming months following normal seasonal trends as

harvest approaches. Whilst current wheat prices are 14

per cent below the two-year average, prices are still above

average compared to 10-year average, and increased

production will go some way to compensating for lower

prices.

Commodity Overview

• Timely August rainfall has improved crop prospects in some areas of below average June and July rainfall.

• Lack of liquidity is expected to see wheat prices flat to down 10 per cent in coming months.

• Lower prices compared to the highs seen in recent drought years will be compensated to an extent by increasedproduction.

The national winter crop production estimate has increased

6 per cent month-on-month after rejuvenating August

rainfall over parts of Western Australia, South Australia and

Victoria improved prospects for crops at risk of yield decline

following below average rainfall in June and July.

Whilst yield potential varies from region to region,

particularly in Western and South Australia, at a state level

average production is achievable however will be

dependent upon spring rainfall. The reversal in fortunes of

New South Wales crops is the main driver of above average

national production estimates of wheat (+25 per cent),

barley (+3.5 per cent) and canola (+18 per cent).

The impact of China announcing it was suspending barley

imports from Western Australian exporter CBH Grain was

mostly confined to Western Australia, where barley prices

dropped around $15 per tonne. This is not anticipated to

have significant ongoing impact considering barley exports

to China were already expected to be minimal following the

implementation of an 80.5 per cent tariff on all Australian

barley imports.

Northern Hemisphere winter crop harvest is close to

complete in major grain producing countries, with wheat

production in the European Union (including the United

Kingdom) declining 13 per cent year-on-year. Whilst quality

is generally good, wheat production in France, the

European Union’s largest wheat producer and exporter is

down 25 per cent from last year, with exports projected to

decline 30-40 per cent, or around 10 million tonnes. Poor

quality and production declining 40 per cent year-on-year

in the United Kingdom raises the likelihood of the UK having

Source: Profarmer

3

0

100

200

300

400

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

/tonne

Wheat and feed barley prices

Port Adelaide APW1 Kwinana feed barley

100

200

300

400

500

600

700

800

900

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

$A

/tonne

Geelong canola prices

The forecast of higher milk production in Australia will

contribute to an increase in export volume in 2020/21.

However, world supply is also expected to be higher

driven by government intervention in response to COVID-

19 which will likely lead to softer prices.

China and Japan will remain our largest trading partners

by value, currently representing 26 per cent and 19.2 per

cent respectively. At state level, Victoria led the way for

dairy exports, accounting for 77.7 per cent market share

and increasing by $39.9 million to over $1.9 billion.

Tasmania also reported strong growth, increasing by $8.1

million to $153.2 million, maintaining a market share of 6

per cent.

Global dairy prices were softer in August, driven by high

inventories leading to increased offerings. The southern

hemisphere will ramp up production over spring, this will

be coupled with high inventories in Europe leading to

softer prices in global markets for the remainder of 2020.

Commodity Overview

• The forecast of a wet spring will aid milk production over the seasonal peak and reduce input costs. Feed grain prices are likely to remain flat to slightly lower during September before coming under pressure at harvest.

• Australian dairy exports are well positioned to grow volume in 2020/21 however export prices will be lower.

• Global dairy prices have weakened under the weight of increased supply and are expected to continue to fall for the rest of 2020.

Warm soil temperatures coupled with adequate rainfall in

August kept pastures growing through what would normally

be a stagnant period in southern dairying regions. This

aided milk supply and kept additional feed costs low. The

forecast of a wet spring will add further confidence as the

season enters the peak production months.

However, in some regions the risk of becoming too wet

could translate to pasture damage, which will need to be

repaired once paddocks dry out. This isn’t expected to

hinder production growth, however, there will likely be a

higher requirement for additional feed such as silage.

Looking longer term, feed grain prices are likely to decline

once the new crop is harvested. This will provide dairy

farmers with an opportunity to reduce input costs and

maintain milk supply through summer, improving the

outlook for profitability in 2020/21.

The value of Australian dairy exports increased for the third

consecutive year in 2019/20, increasing by $50.6 million to

$2.5 billion. The increase was driven by improvements in

price which offset a decline in export volume as

unfavourable seasonal conditions in 2019 kept overall milk

production at a historically low level.

Source: Global Dairy Trade and GTIS

4

1,000

2,000

3,000

4,000

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

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

Loose leaf lettuce varieties are in good supply in both

Western Australia and Victoria. Warmer weather

combined with adequate rainfall will be a trend over the

coming months and is likely to lead to further supply

growth. Demand has bounced back in Western Australia

following COVID-19 lockdowns however Victorian

demand from foodservices remains subdued. Prices are

slightly lower than this time last year however they remain

above the long-term average for this point of the season.

Looking at viticulture, the recent anti-dumping

investigation into Australian wine exports to China poses

a significant risk to future demand given the scale and

recent growth of the Chinese market, particularly for

bottled red wine. Australian wine exports to China were

worth $1.07 billion in 2019/20, accounting for 37 per cent

of the total value of wine exports from Australia.

Given the timeline of the investigation, the volume of wine

produced from the 2021 wine grape crush and the state of

wine consumption (in response to COVID-19 and

economic conditions) in 12 months will be significant

influences on the impacts of any trade access restrictions

imposed by China.

Commodity Overview

• Strong citrus demand and a gap in supply will aid the outlook of higher prices in September particularly for limes.

• Bananas are likely to be in higher than usual supply for this time of year due to favourable growing conditions. This has resulted in weaker prices compared to 2019.

• Loose leaf lettuce varieties have experienced favourable growing conditions leading into spring. Availability is high however prices in Victoria are likely to come under pressure in September. In contrast demand is back to 100 per cent in Western Australian following COVID-19.

Demand for fresh citrus remains strong, driven by health-

conscious consumers and a reduction in supply for some

categories. The average price for oranges in August was

10 per cent higher than year ago levels. However, it was

limes that showed the highest average price growth, over

2.5 times higher than year ago levels.

It was widely thought that lime prices would suffer due to a

lack of foodservice demand, which may have initially been

the case. However, demand has strengthened as

consumers find ways to include immune boosting foods into

the weekly shop. A decrease in supply from Queensland

due to frost damage earlier this year also contributed to the

rise in August prices. It’s likely that prices will remain well

above average in September with demand unlikely to

retreat.

The supply of banana’s is expected to remain above the

seasonal dip which would generally cause prices to rise

from August to December. The seasonal decline in supply

would generally correspond with cooler, dryer growing

conditions. However, rain has followed cooler weather over

the past month which has been conducive to growing

bananas. As a result, prices are expected to remain below

year ago levels during September.

Sources: GTIS, Ausmarket and Rural Bank *Citrus price index includes oranges, lemons, mandarins and limes. **Tropical price index includes bananas, mangoes, pineapples, passionfruit and paw paw.

5

0

50

100

150

200

250

Jul

Au

g

Se

p

Oct

Nov

Dec

Jan

Feb

Mar

Ap

r

May

Jun

May '18 =

100

Citrus price index*

2018-19 2019-20 2020-21

0

50

100

150

200

Jul

Au

g

Se

p

Oct

Nov

Dec

Jan

Feb

Mar

Ap

r

May

Jun

July

'18 =

100

Tropical fruit price index**

2018-19 2019-20 2020-21

The ESTLI recovered 7 per cent in the final week of

August as a very favourable rainfall outlook for spring

appeared to add some confidence to producers looking to

restock.

There is still significant uncertainty in the outlook for

demand due to reduced processor capacity in Victoria and

the impact of COVID-19 restrictions. With lamb supply

increasing significantly in the next few months and Victoria

accounting for almost 50 per cent of Australian lamb

slaughter, a return to full capacity in Victorian meat

processing will be important when the initial six-week

period of restrictions ends on 18 September.

Demand from consumers will remain dependent upon

restrictions on foodservices being eased in Australia and

in export markets as an estimated 60 per cent of

Australian sheepmeat is consumed through foodservice

channels, and typically higher-end foodservice which has

been the most affected by COVID-19 restrictions.

There was some positivity in export markets in August with

lamb export volumes to the Middle East up by 19 per cent

month-on-month after being a significant market showing

subdued demand since the beginning of the pandemic.

Commodity Overview

• Demand uncertainty is expected to continue to provide headwinds for lamb and mutton prices with the critical factors needed to see an improvement in prices being a return to normal processing capacity in Victoria and COVID-19 restrictions on foodservice outlets being eased.

• The increased supply of new season lambs will also add pressure to prices with a 30 per cent increase in weekly slaughter forecast between the end of August and late December.

• The favourable spring rainfall outlook is providing optimism for producers to restock and add weight to lambs.

The Australian sheep industry is approaching a critical time

of year when the spring flush of new lambs start coming to

markets and supply rises. Early signs of the spring flush

were seen in August when average weekly eastern states

lamb slaughter was 7.7 per cent higher than June and 8.7

per cent higher than August 2019, signalling what is

expected to be a slightly stronger season for lambs thanks

to lamb survival and marking rates.

Weekly lamb slaughter is expected to rise by 30 per cent

from the last week of August to late December. Sheep

slaughter however is expected to trend higher from very low

levels in winter but remain lower year-on-year as seen in

August when average weekly slaughter was 35 per cent

lower than August 2019.

The downward trend in lamb and mutton prices continued

in August as the eastern states trade lamb indicator (ESTLI)

fell 32 per cent from the start of June. The national mutton

indicator fared slightly better with a decline of 23 per cent.

The market, which was already under pressure from

subdued consumer demand due to COVID-19 restrictions

on foodservice outlets was further impacted by reduced

demand at saleyards due to a decline in buying power from

Victorian processors operating with restrictions on meat

processing capacity.

Source: Meat & Livestock Australia *Price data between 26/3/20 and 2/6/20 is unavailable due to MLA suspending reporting on most price indicators during this period.

6

200

400

600

800

1000

Jan-1

8M

ar-

18

Ma

y-1

8

Jul-18

Se

p-1

8

Nov-1

8

Jan-1

9M

ar-

19

Ma

y-1

9

Jul-19

Se

p-1

9

Nov-1

9

Jan-2

0

Ma

r-20

Ma

y-2

0

Jul-20

Se

p-2

0

Ac/k

g c

wt

Lamb and mutton price indicators*

ESTLI Mutton

0

100

200

300

400

500

Jan-1

8

Mar-

18

May-1

8

Jul-18

Se

p-1

8

Nov-1

8

Jan-1

9

Mar-

19

May-1

9

Jul-19

Se

p-1

9

Nov-1

9

Jan-2

0

Mar-

20

May-2

0

Jul-20

Se

p-2

0

'000 h

ead

Eastern states weekly slaughter

Lamb Sheep

emerge as a support level, as it did between 2010 and

2015, or whether we see a move back down to the 800-

cent level, the support level from 2000 to 2010.

With China having largely emerged from their strict

COVID-19 lockdowns earlier this year, appetite from

Chinese buyers has been seen at wool auctions thus far

this season. Chinese supply chains have already had a

chance to ramp back up.

Particularly at the finer end of the market, a lower level of

demand from European buyers has also been felt. The

economic impacts of COVID-19 have translated to softer

consumer demand for higher end products, such as

woollen clothes. This is also likely to have a flow on impact

on Chinese demand.

Last season China took 78 per cent of Australia’s wool

exports, with sundry export destinations including India

(five per cent), Italy (four per cent) and South Korea (three

per cent). With the same underlying issues impacting

Chinese demand also impacting these export markets, the

prospect of a demand led rebound in the wool market this

year looks highly unlikely.

Current estimates show the volume of greasy wool

production declining ever so slightly this season, 1.1 per

cent down on 2019/20 volumes. This is largely due to a

decline in the number of sheep being shorn (down 5.2 per

cent) with average fleece weights (up 2.9 per cent) set to

benefit from a higher rainfall year.

Commodity Overview

• Prices have fallen to levels not seen in several years, increasing friction between buyers and sellers.

• The global macroeconomic outlook does not bode well for a recovery in wool prices this year.

At the end of August, season to date offer volumes were

down around two per cent year on year, and down 19 per

cent on the five-year average. The high level of friction

between buyers and sellers has been well and truly on

show thus far this selling season with 14.3 per cent of the

season to date offering having been passed in. Although

this figure is a decline from last season (21 per cent) it is

still considerably higher than the five-year average (10.3

per cent).

In the short to medium term is also appears as though this

friction will translate into lower offer volumes, as sellers hold

back bales from auction during a period of lower prices

and/or price instability.

The subsequent stockpile of stored bales has the potential

to stifle any recovery in prices, if/when the market gets back

to a level where sellers look to offer/re-offer these bales.

The start of the 2020/21 wool selling season has seen the

EMI break down through the 1,000 cent per kilogram level

for the first time since the end of the 2012/13 wool selling

season. The impacts of COVID-19 only continue to

accelerate the decline in the wool market from the all-time

highs reached two years ago.

In terms of breakdown by type, all types from 17 to 28

micron have seen declines of around 50 to 60 per cent from

two year ago levels, with the EMI having fallen 55 per cent

during this time.

The coming months will determine if 1,000 cents will

Sources: AWEX, AWTA

7

10

15

20

25

30

35

40

45

50

Jan-1

8

Mar-

18

May-1

8

Jul-18

Se

p-1

8

Nov-1

8

Jan-1

9

Mar-

19

May-1

9

Jul-19

Se

p-1

9

Nov-1

9

Jan-2

0

Mar-

20

May-2

0

Jul-20

Se

p-2

0

'000 t

onnes g

reasy

Australian Wool Production

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Jan-1

8M

ar-

18

May-1

8

Jul-18

Se

p-1

8

Nov-1

8

Jan-1

9M

ar-

19

May-1

9

Jul-19

Se

p-1

9

Nov-1

9

Jan-2

0M

ar-

20

May-2

0

Jul-20

Se

p-2

0

Ac/k

g c

lean

AWEX Eastern Market Indicator

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.

© Copyright Rural Bank, a Division of Bendigo and Adelaide Bank Ltd ABN 11 068 049 178 (04/20)

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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