According to Rabobank's monthly agribusiness report, Australian commodity prices are looking to gain this year despite a record-breaking 2020.
Australian agricultural commodities saw their highest prices on record last year, as prices soared approximately 18% between September 2019 and March 2020.
The report found that, thanks to La Niña and demand from China, the majority of commodities produced in Australia are in for another good year.
The report follows ABARES' prediction that 2020–21 will be the second most profitable season ever for Australian farmers.
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Which commodity prices are expected to gain?
Canola
The price of canola is currently close to record-breaking – Western Australian genetically modified (GM) Kwinana Canola is trading 6% higher than last year, while non-GM canola is up 15%. These gains are due to strong Chinese demand and poor European and Canadian production.
Barley
A structural deficit in corn amidst a surge in Chinese demand is expected to indirectly raise prices for Australian barley.
Sugar
Australian sugar might be having a golden moment. With a late harvest season in Brazil likely and a lack of shipping containers muting Indian sugar exports – a nod to the intricacies of our globalised world – 2021's sugar prices may be volatile.
Lamb
Lamb prices are at an all-time high for the second year in a row, but is not all good news, slaughter is at yet another low point. January lamb exports were also down, they have dropped 42% over the last 12 months.
Which commodity prices are expected to fall?
Cattle
Cattle prices are caught in a stalemate. While producer demands are declining, a limited supply of cattle may have a stabilising effect on prices. Australian beef export volumes have fallen year to date, they're currently down 37% overall, with the US and Chinese market down 55% and 56% respectively.
Wheat
If not comparing to 2020, Australia is in for a bumper year of wheat production. This comes as fears of frost damage to crops in the US loom. Rabobank predicts the market will be sensitive to downgrades of wheat crops globally.
Which ASX shares could be impacted by rising or falling commodity prices?
Here's a quick look at 3 ASX shares dealing in the commodities discussed above:
- GrainCorp Ltd (ASX: GNC) stores and markets Australian barley, canola and wheat. It is also the largest producer of solvent and expeller canola oil in Australia. GrainCrop has a history of stable performance on the ASX, but it's been slowly rising over the last 12 months, with a 24% return on investment. The GrainCrop share price is currently $4.34.
- Wingara AG Ltd (ASX: WNR) primarily markets fodder and hay for livestock consumption. It identifies exporting canola, barley, wheat and legumes as growth opportunities within the company. The Wingara share price is currently 14 cents, down 44% over the last 12 months and 31% year to date. Hopefully, the rise in demand and price of its commodities will help boost the company into the green.
- Australian Agricultural Company (ASX: AAC) manages a herd of around 400,000 head of cattle in Queensland and the Northern Territory. The company owns 6.4 million hectares of land – roughly 1% of Australia's land mass. The company's share price is currently $1.16 with steady returns of 4% over the last 12 months and 5% year to date.
La Niña is providing a boost for Australian farmers
The rainfall outlook for the next few months is very promising. Most of Australia's east coast is expecting 60% to 70% more than the median rainfall between March and May. The rest of the country is expecting around 50% more than the median.
More good news for farmers; soil moisture across most of Australia is above average. WA's wheat belt and the interior of NSW are leaving the rest of the country in its dust. South-East Queensland and parts of Central WA are still suffering from severe rainfall deficits.
While La Niña has brought much-needed rainfall to Australia, it has been detrimental to food production in the Northern Hemisphere. The weather cycle has caused seasons to be unusually dry for most of the world, keeping prices firm over the coming months.
