High grain prices hitting eggs, poultry: NAB

Feed Processing Articles >> Oceania

Rising grain prices may be a boon for growers but they are also boosting costs for industries such as poultry and eggs, a leading bank says.

This is the outlook in the November Rural Commodities Wrap published today by the National Australia Bank, which focuses on the poultry sector.

Rising costs are predicted to keep consumption at 840 kilo tonnes in 2010-11 and increase the price of poultry meat – Australia’s highest consumed meat – by 3.5 per cent, the NAB said.

NAB's agri-business general manager Khan Horne said the price of feed grain was 16.6 per cent higher than the same time last year and unlikely to ease significantly until at least late 2011.

"Feed costs, which account for around 60 per cent of total operating costs for chicken meat producers, have risen sharply this year and the large movements in global grain markets are likely to have a significant impact on production," Mr Horne said.

"Over the near term, rising costs are likely to be absorbed by producers. However, as the situation continues and prices remain at elevated levels, it is a question of how quickly these costs can be passed on to consumers.

"Similarly, the egg industry is facing considerably higher costs this year and NAB expects production to be down 2 per cent in 2010-11 as a result.

"The forecast is for a rise in consumer egg prices of around 4 per cent and further rises in late 2011 when the full impact of rising costs is passed through," Mr Horne said.

The report also showed that NAB’s Rural Commodity Index, measuring prices, was steady in Australia dollar terms last month as the rising dollar offset gains across the commodity classes.

Nonetheless the Australian dollar index remains significantly higher than the same time last year (20.5 per cent) and was likely to remain high for the time being, NAB said.

A further upgrade to the production outlook saw NAB raise its estimate of the gross value of farm production for 2010-11 to $47 billion, an upward revision of $400 million on last month’s expectations.

Wheat prices, up 32 per cent in the last 12 months, have pulled back recently, hitting their lowest level since July. NAB’s estimate of the 2010-11 crop remains unchanged from last month at 23.8 million tonnes.

However, looking ahead, quality would be a key issue, NAB said.

An increase of 3.1 per cent in global dairy prices last month in US dollar terms was offset by the weakness of the currency to see prices remain stable in Australian dollar terms.

Prices should ease in the coming months with production in Australia and New Zealand approaching seasonal peaks, but Asian demand for milk powder was likely to provide a floor in prices, NAB said.

The heavy lamb indicator fell 9 per cent in October as the seasonal flush in numbers continued.

However fundamentals remained tight and prices were 14 per cent higher than the same time last year.

The Eastern Young Cattle Indicator also eased last month, but prices were up 19 per cent over the year as supplies remained tight and restocker demand strong.

These factors were likely to support prices in the coming months, but it was likely the higher Australian dollar would begin to bite in mid-2011, NAB said.

The rising Australian dollar saw fertiliser prices fall last month with the NAB Weighted Fertiliser Index down 3.9 per cent in Australian dollar terms but up in US dollar terms.

Driving the US dollar result were increases in the Diammonium Phosphate (DAP) and Urea prices, up 5.5 and 5.1 per cent respectively.

DAP and Urea were at their highest prices since October 2008 and were likely to increase as producers seek to capitalise on the current high prices for broad acre crops, NAB said.

This article hasn't been commented yet.