ANZ's latest pulse check of Australian ag's outlook

That’s not to say some regions and sectors aren’t doing it tough.

The persistence of the dollar at around US80 cents is impacting our competitiveness.

The winter crop is reverting to near or below average levels after last year’s record yields due to the dry conditions – just last week ABARES forecast a 39 per cent decrease in 2017-18 to 36.3 million tonnes.

And in the north, cattle producers have had to check their efforts to rebuild stock numbers as dryer conditions continue while those in dairy are continuing to manage volatile prices and are rebuilding confidence in the industry.

Looking closer at some of the major soft commodities, the latest ANZ Agri In Focus commodity paper highlights both current and potential domestic and global impacts.

But as we know, agriculture works in a cyclical way and regardless of commodity outlooks, good or bad, the need for constant improvement across productivity and performance remains paramount to a farm’s economic health. 

In Western Australia, late rain in the central and north regions has come too late to have any major positive impact on yields.

This is in contrast to the southern region of the state and throughout both South Australia and Victoria which are looking particularly well-placed despite a dry start.

As expected, and coupled with the dry conditions across the country –  particularly in North West NSW and southern Queensland –  the national wheat crop is expected to fall to around 22.5m tonnes.

While considerably smaller than last year’s record crop, it does track closer to the average.

Globally, overall wheat production is forecast to fall slightly by 12m tonnes, though overall stocks are forecast to rise marginally to a record 264.7m tonnes.

The sheer volume of the forecast Black Sea Region exports –  expected to reach 2.13 billion bushels – will invariably have an impact on prices moving forward, but for our growers their ability to produce grain of high quality and protein will be key to attracting better prices.  

Softening prices of late have provided breathing room as the sector looks to rebuild the herd and find improved margins throughout the supply chain.

The prices, along with the spasmodic rains that have come to some parts of Queensland, while not enough to inspire widespread confidence, did allow some producers to restock up until around June.

The dry conditions since have resulted in more stock making its way to market while at the same time there’s been a rise in the number of cattle entering feedlots, passing the 1 million head mark again earlier this year. 

As global beef production continues to increase at a faster pace than consumption there should be a continuation of the downward pressure on global prices.

For our exports, particularly into China, the increased presence of Brazil and the reintroduction of US beef will intensify competition while the fall in Australian cattle prices stimulates discussion on whether this could see live cattle exports to China move to a commercial level.

Sheep really are the best story among the major Australian agri commodities at present, particularly as grain prices remain low.

Renewed interest – and growing global demand – has pushed prices up as more look to either restock or enter the market.

The desire to rebuild the flock from 67.5m has meant farmers are trading off between high prices and retention and while the lamb slaughter rates for the past 12 months has hardly dropped, mutton production/sheep slaughter has dropped off markedly.

In addition, while recent dry conditions have increased lamb yarding and slaughter numbers in the past few months, the  Northern Trade Lamb Indicator (NTLI) has remained solid, giving confidence about underlying demand. 

A key attraction for those that have introduced sheep has been the resilience of both sheepmeat and wool which are continuing to hold as the NTLI rises steadily even though the main supply of lamb has started to enter the market.

For wool’s Eastern Market Indicator (EMI), while it has softened to 1,556Ac/kg, the recent increase has been felt more across the fine and broader micron categories and importantly, the overall demand story remains strong.

Cotton growers will be looking for better conditions this year after the late and sustained run of hot conditions wiped 15pc to 20pc off yields and caused downgrades last season.

Again, in key production regions like northern NSW and southern Queensland, spring rain will be crucial for dry land crops while irrigated plantings are expected to be stable for the end of the year, likely benefiting from lower water prices.

Looking overseas, the impact of Hurricane Harvey on the US cotton harvest appears to be less than expected with the losses only set to be around 400,000 bales.

Globally, production of cotton is expected to increase by 8.3pc, yet production in 2017-18 is still expected to be lower than the 121m bales produced in 2004-05.

Further influencing global supply and demand is China’s ongoing reserves sales – reportedly due to the deteriorating quality of stocks.

For consumption, in the short term, the growing markets of Vietnam, Turkey and Bangladesh are expected to offset the slowdown from China, contributing to a steady rate of consumption of 2.9pc.

In what has been a challenging 18 months, with much uncertainty, those within the dairy sector who have been able to make it through are starting to see some positives emerge.

Domestically, both consumption volumes and values remain robust.

Additionally, Australian dairy exports are on the improve compared to this time last year with the recovery driven by demand from China for fresh milk, butter and cheese.

Other improving export markets include Japan, Mexico and South East Asia.

Overall, global consumption is expected to increase across all dairy product categories except whole milk powder, which is expected to fall 1.6pc.

This fall is more than offset by the increase in non-fat milk powder consumption which is forecast to increase by 8.2pc.

Consumption of cheese is expected to increase 1pc, butter up 3pc and fresh milk 1.1pc.

At present, there is a strong split between prices and performance of different products driven by strong milk fat demand, particularly out of Europe with butter and cheese performing strongly while whole milk powder stagnates and skim milk powder performs relatively poorly.

Moving forward, input costs are expected to rise due to the drier winter conditions and rising hay and grain prices.

Water prices also remain an increasing cost with low reliability entitlement prices jumping significantly in recent months.

Much like the dairy sector, the challenges for Australian sugar growers have been off farm and further up the supply chain.

The high global sugar price seen at the end of 2016 has been falling for some months impacted by a drop in consumption, strong production forecasts across Asia, Europe, Cuba and South Africa, and the uncertainty around global stocks, particularly in Brazil where sugar cane has an alternative use as ethanol.

These factors are likely to mean further global price volatility is ahead, while locally it is still unclear how the finalised changes to the on-supply agreements between mills and growers will impact growers moving forward.

Here in Australia, production is expected to dip as a result of Cyclone Debbie, but encouragingly the losses are minimal and the overall quality of the crop remains good.