Upbeat prospects for wool, lambs, citrus and more in 2018

Surging horticulture exports – particularly brassica crops, asparagus and citrus – and outstanding earnings prospects from sheepmeat and wool are the headline trends anticipated by farm sector lender, Rural Bank in 2018.

Leaping lamb markets are tipped to break 700 cents a kilogram on the National Trade Lamb Indicator as demand continues outpacing supply and drives a sixth consecutive year of above average prices.

Analysts at the bank’s insights division, Ag Answers, are 68 per cent confident the lamb market indicator’s average price could range up to 700c/kg (carcase weight) by late winter.

By December values may even spread as high as 800c, although forecasters admit there’s a chance by then that markets may also dip significantly lower.

“One factor supporting the likelihood of prices reaching the unprecedented 700c mark, and potentially holding there for a short period, is the exchange rate,” says an Ag Answers report on market movers for 2018.

Noting relatively strong post-spring price trends, which ended the past year at 661c/kg – aided by improved availability of supply and robust overseas demand – analysts said lamb markets were last (briefly) in the current price range when the Australian dollar was at parity with the US currency in 2011.

Based on current exchange rate trends, which averaged US77c in 2017, a 700c lamb market would still be about US30c/kg cheaper than export buyers were paying seven years ago, and export markets seemed hungrier for Australian lamb now than at the start of the decade.

“The effects of rising lamb prices on international demand will be softened somewhat by a relatively low dollar,” said the bank’s insights team, which also tips the dollar lingering, on average, below its recent US80c highs.

National Australia Bank (NAB) is also confident the dollar will spend most of the year below US75c.

Prices for crossbred ewes in lamb reflected an upbeat mood among sheep producers, with markets in Central West NSW and Victoria hitting about $350 a head in early January.  

Rural Bank’s agribusiness general manager, Andrew Smith, said less competition from a depleted New Zealand flock also augured well for Australian lamb exporters as global red meat traders attempted to satisfy rising demand for protein.

However, NZ trends would be important to watch, as would our dollar’s movements and seasonal conditions.

“In general, it’s a pretty good time to be a sheep producer, which is a relief for a woolgrowers after all these years,” he said.

“It’s an exciting time in the wool industry again.”

As wool prices continued their steady three-year climb to hit new records last week, Ag Answers tipped the market would range in the upper half of its forecasting model, with the Eastern Market Indicator averaging about 1800c/kg clean this year – just under last week’s 1822c record.

“There will be no supply shock to undermine the market as wool stored on farm is limited … there appears to be very little wool stockpiled at any point in the supply chain,” the report said.

Woollen apparel demand was rising as Chinese incomes lifted and shrinking wool stocks in China, (which buys 80pc of Australian clip exports) were underpinning the market’s strength, while a lower dollar could further aid woolgrower earnings.

On the beef cattle front, Ag Answers has predicted a 5pc dip in the Eastern Young Cattle Indicator from last year’s average to 572c/kg, partly because of weaker restocker demand as the market tracks closer towards 500c/kg by December.

Beef export markets would be more competitive as global production increased, particularly in India, the US, China and Brazil, and in Australia if average seasonal conditions prevailed.

“Southern Australia is on track with herd rebuilding, but the north is still a bit of an unknown while pasture prospects in many parts of Queensland remain uncertain,” Mr Smith said.

Although the cattle market correction was not unexpected, managing director of big farm services network, Ruralco, Travis Dillon, said prices were still well ahead of their five year average.

“Markets, seasons and expectations never line up perfectly, but across most commodity sectors farmers are going into 2018 in a pretty sound position – even grain and dairy prices are re-balancing,” he said.

Ag Answers is predicting dairy markets should stabilise by the second half of 2018 as skim milk powder prices were forecast to lift more than 9pc to average about $2481 a tonne in 2018, peaking at more than $3000/t.

NAB also feels the sector has “normalised”, helped by a reasonable seasonal outlook in dairying regions.

NAB agribusiness economist, Phin Ziebell, said most major milk processors were announcing step-ups to the mid-$5/kg range this season.

“November milk receivals were up 4.3pc year on year, which provides a partial recovery to the 6.9pc plunge in 2016-17, caused by a ongoing price shocks and a wet spring in Victoria,” he said

Meanwhile, dry NZ conditions were likely to cause a 2pc production cut for 2017-18 which could further assist global prices, although milk output had lifted recently in Europe and the US where cheap feed has helped production.