Australia's fourth consecutive monthly interest rate rise has our economy riding its fastest cash rate climb in almost 30 years, but farmers' budget headwinds are more likely to be courtesy of Russia's brutal war 12,000 kilometres away.
Another 50 basis point jump in the Reserve Bank of Australia's official cash rate to 1.85 per cent this week will undoubtedly make an impact on farm sector balance sheets and sentiment, say industry analysts.
However, agribusiness margin pressures will mostly be more reflective of the explosive consequences of this year's Ukraine war on global energy prices and farm commodity markets.
The knock-on effect of peaking global energy costs has now impacted all aspects of the farm supply chain, while during July many commodity prices were also hit by concerns about slowing global growth.
The National Australia Bank's index of rural commodities prices dropped 6.9pc last month, albeit down from June's all-time record high.
Of the seven major commodity sectors, only sugar saw a modest 1pc price rise, while cotton fell 15.1pc and wheat 9.3pc.
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"I'd put the whole energy issue emanating from the Ukraine conflict as a more concerning factor for agriculture than interest rates at the moment," said Commonwealth Bank of Australia's agri-strategy director, Tobin Gorey.
"There's nothing you can do that doesn't require energy at some point."
The immediate impact of gas shortages because of Russia's Ukraine invasion, and subsequent soaring global gas and oil demand, had inflated the cost of running Australia's farm plant and machinery, including electric pumps, shearing sheds and milking equipment.
It was also inflating the cost of freighting farm commodities to market, or buying in a whole array of inputs from fertiliser to fencing wire and wool packs.
Energy prices were also being reflected in rising manufacturing costs for everything from stockfeed supplements to tyres and poly pipe.
Inflation peaking soon?
This week the RBA predicted Australia's overall inflation rate would peak at 7.75pc in coming months, settling near 4pc in 2023 and 3pc in 2024.
The Commonwealth Bank was a little more hopeful, tipping a faster decline next year as some contributing local and global factors weakened or dissipated.
"But no economist has high conviction over the path of inflation presently given there are a multitude of forces impacting price outcomes," said CBA's head of Australian economics research, Gareth Aird.
He said the RBA wanted to return inflation to a 2pc to 3pc range over time, while keeping the economy on an even keel, but the path towards that balance was "narrow and clouded in uncertainty", largely because of global developments.
Despite the Reserve Bank's rapid 175 basis point rate lift in the past few months, Mr Aird believed it was now in no rush to take its policy rate much above 2.5pc.
He therefore tipped three more 25bp rate hikes from the central bank, potentially in September, October and November, to end the year at 2.60pc.
Global fears hurt ag
NAB's senior agribusiness economist, Phin Ziebell, said many farm commodities had been hit hard as central banks tried to rapidly "normalise" interest rates in response to high inflation and subsequently fostered market fears of a world-wide economic downturn.
"Wheat prices have dropped below Ukraine invasion levels, although supply uncertainty remains and prices could lift in response to geopolitical or seasonal risks," he said.
On a brighter note, NAB's Rural Commodities Index did record some easing in July's farm input prices - down from very high June levels.
Fuel prices responded to cheaper global oil and signs of slowing global growth, while fertiliser saw another monthly drop of 8.7pc, although the indicator price is still up almost 60pc on the same time in 2021.
"With natural gas prices back on the rise due to Russia cutting back supplies to Europe, it is probably too early to hope for further fertiliser price relief," Mr Ziebell said.
Petrol prices at the bowser dipped to nationally average $1.92 cents a litre last week, but diesel remained stubbornly high at $2.26c/litre.
Dollar forecast
NAB expected our dollar to spend second half of 2022 mostly in a US65c to US70c range and tipped "a soft landing" for the Australian economy, with growth likely to slip below 2pc next year.
CBA's Mr Gorey said agriculture's profitability shift from a bullish 2021 to a more pressured 2022 and 2023 would vary across the sector.
In particular, it could depend on how many mixed farming enterprises were tempted to expand cropping activities to compensate for lower sheep earnings.
Conversely, a combination of higher interest rates, fertiliser, fuel and chemical prices could see many farmers reining in crop spending rather than expanding planting areas, which appeared to be happening overseas.
Resilient land demand
"Interest rates will have an impact - they're designed to have an impact on spending - but to date I don't feel they've made much difference to the number of farms being sold," Mr Gorey said.
"Confidence in Australian agriculture in the long term is not diminishing.
"I think a lot of property will continue changing hands, especially given we've had a couple of good seasons which enabled farmers to pay bills and put money into their coffers."
However, some cyclical slowing in property sales might be anticipated given buyers had been unusually active in the past two years and the market generally plateaued after such peaks.
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