Ag’s big money year unlikely to repeat in 2017

Ag’s big money year unlikely to repeat in 2017


Farm Online News
Positive prospects are aplenty for agriculture, but the road ahead is unlikely to be nearly as good as 2016 turned out for at least another decade.

Positive prospects are aplenty for agriculture, but the road ahead is unlikely to be nearly as good as 2016 turned out for at least another decade.

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Sadly, last year’s unusually productive and price-positive farm sector results probably won’t be repeated for a long time

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For many farmers 2016 will go down as one of the more memorable and most rewarding in their careers.

Unfortunately however, last year’s unusually productive and price-positive farm sector performance –  16 per cent better than the past five years –  probably won’t be repeated in 2017.

In fact, history suggests it might take more than a decade to happen again.

Although farmers have started this year generally emboldened and optimistic about the industry’s overall health and prospects, the Australian Farm Institute (AFI) has noted some sobering realities, based on historic trends.

AFI executive director, Mick Keogh, said while a lot of market fundamentals were still solid and in general farm cash reserves were unusually good, the last time Australian agriculture recorded the sort of performance it achieved in 2017 was back around 2001.

Before that, the previous big kahuna of a result was a further 13 years earlier, in 1988 and 1989, on the eve of wool’s reserve price scheme collapse.

“Forecasting how agriculture will fare in 2017 is an exercise fraught with risk, but it’s probably fair to assume for most it will not be as good as 2016,” Mr Keogh said.

Last year’s unexpectedly good seasonal conditions had aligned with soaring livestock prices, pushing the gross value of the big crop yields, horticulture, dairy, fibre and saleyard prices above $60 billion in 2016.

Although global grain and milk product values have been badly depressed, results from most other commodity categories propelled farming’s gross earnings about 16pc higher than the average figure for the preceding five years according to the Australian Bureau of Agricultural Resource Economics and Sciences.

Mr Keogh said the previous big jump in the annual value of ag output in 2001-02 (to almost $40b) had also resulted from a rare combination of good seasonal conditions and high commodity prices.

Unfortunately at that time eastern Australia was also heading into the millennium drought so farming’s gross value dwindled for about seven years until seasons revived, grain yields rebounded and busy livestock restocker markets pushed values above early-2000s levels.

“If history does repeat itself –  and it has a habit of following a bigger picture cycle –  farmers shouldn’t anticipate anything quite as special as they’ve just experienced for maybe a decade and a half,” Mr Keogh said.

“We’re not predicting drought to follow last year’s big season, but seasonal factors are always on the horizon in Australia.”

He noted after about 2011, and despite good Asian market growth fundamentals, repeated monsoon rain pattern failures in northern Australia and dry seasons further south had restrained livestock production and values, also keeping property prices in check until about 20 months ago.

Improved land prices were now averaging $600 a dry sheep equivalent (DSE) –  up from $450 to $500 two years ago.

“Beef is still travelling very well, but Australian prices are at a premium to global markets and you wonder how long they’ll stay so strong, especially if reasonable seasons continue and enable herd rebuilding,” he said.

Despite exceptional grain legume values caused by India’s recent shortages, overall milling and stockfeed grain markets were not set to recover from a global oversupply any time soon.

But plenty of farmers had good reason to be positive about their prospects.

National farm debt had seemingly plateaued in recent years, thanks partly to record low interest rates (under five per cent for some producers) and good livestock returns making debt management far easier.

Anxiety about farm foreclosures by banks, and the potential knock-on impact on farm values and debt-to-equity ratios, had also subsided.

More money was also being stashed in farm management deposits (FMD) than ever before to prepare for leaner years ahead.

In December $4.3b was held in FMDs –  an all-time high for quarter.

Although a searing hot summer had sapped a lot soil moisture and burnt off pastures, the mostly healthy state of farm dam and public water storages in eastern states also provided reassurances the sector was well positioned if dry conditions lingered.

Global commodity prices were improving gradually for dairy and were refreshingly strong for wool and sheepmeat where Australia dominates global production.

Wool producers were enjoying the upside of a depleted 70 million head sheep flock coinciding with renewed textile pipeline demand and signs of stronger northern hemisphere economic activity.

Horticulture, often overlooked as an economic performer in export markets, was now attracting a lot of new players looking seriously at offshore markets, with many following existing producers who turned to exports “in response to the way they’ve been treated by the supermarkets in at home in Australia”.

Mr Keogh said citrus and nut exporters were among the sectors leading the export charge.

Also optimistic for fruit and vegetable producers was the improved Horticulture Code of Practice due by May, with Canberra already engaged in extended consultation about its implementation.

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