A worryingly dry weather outlook in Australia threatens to hit the 2017-18 wheat crop, and could force beef herd liquidation, the National Australia Bank warns.
“The climate outlook for the rest of autumn and into winter is very troubling,” said NAB.
“The Bureau of Meteorology’s three month outlook points to a very high chance of drier than average conditions across Australia (except for Cape York and Arnhem Land).”
El Nino threat
And the bank said that the current long range El Nino outlook was “even more concerning”.
“While these projections naturally carry a degree of uncertainty, particularly at this time of year, El Nino events tend to bring hotter and drier conditions on average to eastern and northern Australia,” NAB said.
Such a development could hit wheat production for the next season.
“The 2016-17 harvest has gone down in the record books as Australia’s biggest ever, with a massive 35m tonnes harvested, more than 5m tonnes higher than the previous record set in 2011-12,” said NAB.
“But as we look ahead to the 2017-18 season, the outlook is considerably more circumspect,” the bank warned.
“If El Nino occurs this season, there is an elevated risk of lower yields,” NAB said. “While this is by no means certain, El Nino events seldom deliver above average crops in Australia.”
Cattle prices could be hit as well
Dry weather could also bring an end to the recent strong run of cattle prices.
A shortage of feed and pasture tends to be bearish for prices, at least in the short term, as it encourages farmers to move cattle quickly to slaughter, rather than to keep back cows for breeding, and steers to gain weight.
“We continue to expect cattle prices to fall further in 2017,” NAB said.
“While we have already seen some contraction in saleyard prices, restocker interest could slow rapidly if conditions are dry over winter-spring as major export markets show a generally subdued pricing outlook,”
“Our forecasts point to the Eastern Young Cattle Index falling to 500 Australian cents per kilogramme in the September quarter of 2017,” NAB said.
“This is an approximately 30% contraction from peak.”