Reduced volatility in cattle markets and good rain in south-eastern Australia and the West Australian wheatbelt saw the National Australia Bank's Rural Commodities Index fall by just 0.1 per cent in May.
The latest NAB's Rural Commodities Wrap shows the Eastern Young Cattle Indicator stabilizing just below 500 cents per kg, after some volatility earlier in the year.
NAB Agribusiness Economist, Phin Ziebell, said the future trajectory of the indicator remained very sensitive to rainfall.
"Slaughter data shows the national herd in a liquidation phase through to April, although the break in south-eastern Australia and rain in northern Queensland could ease this," he said.
"On balance, we see the EYCI sitting in the 400 cent region for the rest of the year, before recovering closer to 500 cents in [the first quarter of] 2020."
Lamb prices continue their record streak, with high export demand and tight supply bringing strong returns, supported by a historically good Eastern Market Indicator sitting near $18 a kg.
"We are cautious about lamb prices remaining at record levels, but a good winter in the south may prompt flock rebuilding and disrupt the traditional spring lamb flush," Mr Ziebell said.
Global Dairy Trade auctions were lower in May, and input costs remain a challenge for irrigators in northern Victoria. Despite this, stronger opening prices for 2019-20 are driving increased confidence.
Seasonal conditions remain front of mind, particularly in northern New South Wales, south-east Queensland and the Darling Downs.
"The Bureau of Meteorology's three-month rainfall outlook points to drier than average conditions across much of the country. If this eventuates, grain production in NSW and Queensland could face yet another challenging season," Mr Ziebell said.
"Domestic feed prices dropped another 10.8 per cent in May, and overall the NAB weighted feed grain price index dipped below $300 a tonne for the first time since July 2018, at $284 a tonne.
"However, month to date data for June indicates that prices have started to trend up again, and the ability of graziers in drought-impacted areas to access good feed at these prices, particularly given high transport costs, remains a challenge."
Rain in Western Australia, Victoria, South Australia and southern NSW led to good winter crop plantings, and ABARES' June crop report puts the wheat volumes at 21.2 million tonnes, which is improved but still slightly below average.
"A poor domestic season could result in the eastern states grain market detaching once again from global trends," Mr Ziebell said.
On a state by state basis, Victoria was the best performer on the Index in May, recording a 2.2 per cent increase, while NSW, Western Australia and Queensland fell 0.3, 0.6 and 1.0 per cent respectively.
Sitting at below US 70 cents since early May, the lower Australian Dollar has helped Australian agricultural exporters.
NAB forecasts two further cash rate cuts by the Reserve Bank of Australia this year, and predicts that the Australian dollar will appreciate slowly to reach the mid US 70 cents by 2020.