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Rain and lower AUD positive for commodity prices

The outlook for agriculture has been boosted by good rain across much of eastern Australia and the Bureau of Meteorology’s forecast for a wetter than average winter, according to the June 2016 Rural Commodities Wrap from National Australia Bank (NAB) Agribusiness.

Prices of major agricultural commodities remain mixed on global markets; however, NAB continues to expect a downward drift in the Australian dollar (AUD) to provide support locally.

• The lower AUD pushed most agricultural commodity prices higher in May, with the NAB Rural Commodities Index up 3.0 per cent in AUD terms but off 2.2 per cent in USD terms
• The AUD has fallen in the wake of the UK referendum and is trading just below 0.74. NAB’s FX strategy team is reviewing its forecasts
• The direct effects of the UK referendum on the Australian economy are likely be minimal, and will largely flow through trade relationships, which are relatively small between the UK and Australia
• The Reserve Bank is expected to leave interest rates on hold at least in July, although heightened global risks suggest a higher probability of a rate cut in coming months
• The standout in terms of commodity prices is sugar, with prices surging amid global supply concerns. ICE no.11 sugar was up 16.9 per cent (AUD) in May and NAB continues to expect higher prices
• NAB expects international dairy prices to remain low for the foreseeable future. However, the low prices may see lower European supply, limiting further downside pressure

NAB’s Rural Commodities Index includes 28 commodities (wheat, barley, sorghum, rice, oats, canola, chick peas, field peas, lupins, wool, cotton, sugar, wine grapes, beef, lamb, pork, poultry, dairy, apples, bananas, oranges, mangoes, strawberries, broccoli, carrots, lettuce, potatoes and tomatoes). The index is weighted annually according to the gross value of production of each industry in Australia.

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