Rural Bank provides agriculture outlook
While the outlook for Australian farmers is mixed in 2023, Rural Bank expects crop producers to enjoy a bumper winter season, with production forecast to be equal to the second highest on record.
Wheat production will exceed 30 million tonnes for the third consecutive year – an “unprecedented run”, the bank says in the report. Above average production, strong export demand and high global prices will provide a continued positive outlook for cropping.
In an Australian Agriculture Outlook 2023 report released on December 13, Rural Bank, a division of Bendigo & Adelaide Bank, said it expected trade conditions to continue improving next year, but noted that farm input costs would persist as a key issue across every sector.
Rural Bank head of agribusiness development Andrew Smith (pictured above) said “near perfect” seasonal conditions in Western Australia and South Australia meant growers were on track to produce a “record winter cereal crop”.
“Harvest is advancing well with minimal delays at this stage and canola yields are at record levels with very good oil content,” Smith said.
Four factors influencing agribusiness
The report identifies four major factors that will impact Australian agriculture in the first half of 2203. Seasonal conditions, production costs, trade conditions and global economic headwinds all featured prominently in the findings, Smith said.
With the UK Free Trade Agreement anticipated to take effect in 2023, and the Australia-India Economic Cooperation and Trade Agreement (IA-ECTA) coming into effect in December, Smith said he expected trade conditions to continue improving.
“Sheep meat, almond, wool, lentil, and wine producers are set to see the greatest benefits from improved access to the Indian market,” Smith said.
Tight global fertiliser supply and high fuel and labour costs were expected to weigh on growers’ margins, but a generally weaker Australian dollar compared to the first half of 2022 should lift the overall competitiveness of Australia’s agricultural exports.
“High production costs are expected to remain an ongoing challenge for producers with input costs and the cost of labour forecast to remain elevated while visitors on working holiday visas remain well below pre-pandemic levels,” Smith said.
Acknowledging that geopolitical uncertainty was supporting global grain prices, Smith expected the Russia-Ukraine conflict to continue driving volatility across grain and oilseed markets, as uncertainty around exports continued.
Following recent high-level talks, trade relations with China could move in a more positive direction, but Smith also noted that “punitive tariffs” with the country remained in place, and that any improvement was likely to be slow.
“Supply chain disruptions are also improving at a domestic and global level and a return to more typical weather conditions is forecast, which should see cropping and horticultural production remain above average,” Smith said.
Rural Bank’s report identified a number of key trends across different agribusiness sectors. A summary of key points is provided below.
Cropping
All states were set to produce above average yields, Rural Bank said.
Demand for Australian grain was expected to stay strong into 2023, with above average production, strong export demand and high global prices providing a continued positive outlook.
Australian winter crop production was forecast to be the equal second highest on record however, quality had been affected by excessive rain on the east coast. With harvest delayed, growers’ top priority remained getting this season’s crop off in a safe and timely fashion.
While the current crop estimate of 36 million tonnes was 6% below last year, it remained 43% above longer-term averages, the bank said.
Cattle
Australian cattle prices were likely to see a marginal fall in the first half of 2023, which Rural Bank said was due to downward pressure from increased supply.
As a result of a favourable rainfall outlook increasing the cattle herd and slaughter rate, beef production was expected to rise by 5% during the first half of 2023.
The forecast rise in supply should lead to more competitive pricing encouraging domestic beef consumption, though inflationary pressures were likely to weigh on consumer spending across higher end beef products, Rural Bank said.
Dairy
Total milk supply was expected to be lower in 2023, due to the number of farmers choosing to leave the industry, and the impacts of flooding.
As a result, Rural Bank expected high prices to be sustained in the coming season, but noted that the elevated cost of inputs would keep dairy farmers’ margins slim.
Australian milk production should decrease, and global supply would increase marginally but remain constrained. Domestic demand was expected to remain relatively flat while a smaller domestic pool with high input costs would see close to record farmgate prices maintained, the bank said.
Horticulture
Rural Bank expected squeezed margins for horticultural producers to continue over the next six months. High packaging, fuel, freight, fertiliser, and labour costs were expected to remain a factor well into 2023.
Fruit and vegetable prices were forecast to remain well above average across most varieties, although it expected strong production to result in easing prices as the year progressed.
Improved export market access would hold horticultural exports in good stead, Rural Bank said. Vegetable producers expected some short-term supply shortfalls following a challenging spring and summer planting period that was heavily impacted by flooding and rainfall events. Potatoes have been negatively impacted by flooding and heavy rainfall, particularly crops throughout Tasmania.
Sheep
Lamb supply was expected to be higher than a year ago but lower than the surge of supply seen in late-2022, Rural Bank said.
Softer consumer demand due to inflation could be mitigated by improved access to the UK and India, it said.
Although lower prices were on the horizon, Rural Bank noted that there was plenty of optimism in the outlook for sheep producers heading into 2023, with rebuilt flock and wet conditions fuelling high production.
Wool
National flock increases should result in increased wool supply and discounted prices into 2023. Volumes were forecast to continue increasing for a third consecutive year.
Due to falling consumer sentiment at a domestic and global level, Rural Bank expected demand to ease, placing downward pressure on prices. Increased stock numbers and wet weather were expected to place pressure on shearing operations, which Rural Bank said were already affected by a labour supply shortage.
Despite a series of flooding events over 2022, the Australian Banking Association said in November that the agricultural sector continued to show resilience, with bank lending up by almost a third.
Earlier this year, non-bank lender Grow Finance extended its loan offering to include primary agriculture, allowing businesses to fund specialised equipment to boost growth.
