Despite the looming global recession looking likely to keep the lid on Australian farm sector performance in 2023, Rural Bank says fresh free trade deals with India and the UK, and a low dollar, should underpin relatively upbeat prospects.
Notably, sheepmeat, wool, almond, lentil and wine producers were set to see the greatest export benefits as access to the Indian market opened up.
However, another uncertain year of global market volatility, more interest rate hikes, labour shortages and high farm input costs would restrain overall farm sector results, according to Rural Bank's agricultural outlook guidance for 2023.
Fortunately, while commodity prices were no longer as hot as recent years, livestock production would rise, horticulture output would be up, too, and grain demand was strong.
Farmgate milk values were the exception to the general price dip, likely to stay near record levels because of shrinking dairy farmer numbers and volume declines of about seven per cent.
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"We expect trade conditions to continue improving in 2023 with the UK Free Trade Agreement anticipated to take effect and the Australia-India Economic Co-operation and Trade Agreement (IA-ECTA) coming into force this month," said Rural Bank's head of agribusiness development, Andrew Smith.
"Supply chain disruptions are also improving at a domestic and global level."
However, he said farm input costs would persist as a key issue across every sector, compounding overseas and domestic economic pressures and creating a mixed outlook for farmers for the first half of 2023.
The industry was still likely to be navigating, for some months, the challenges of excessive wet weather impacting a host of east coast agricultural sectors, but South Australia and Western Australia were revelling in bumper seasonal results, including record winter cereal and canola crops.
Mr Smith said four major factors would shape Australian agriculture in the next six months - production costs, trade conditions, global economic headwinds and seasonal conditions.
Tight global fertiliser supplies plus high fuel and labour costs would weigh on grower margins.
Competitive dollar
However, a generally weaker Australian dollar in comparison to the first half of the current year was likely to lift our overall agricultural export competitiveness.
That said, our exchange rate was not expected to drop back to the US62 cent lows seen in October, primarily because the US, Eurozone and British economies were slipping into recession which would result in some Australian currency appreciation.
Optimistically, despite unemployment tipped to rise above 4pc and core inflation now at 6.1pc - its highest point in 30 years - Rural Bank assumed Australia would avoid recession next year.
However, it anticipated the economy would see only 1.5pc gross domestic growth after eight successive months of official interest rate rises by the Reserve Bank of Australia and the likelihood of another two in the new year before rates levelled out.
"While some market economists are forecasting rate cuts in the second half of 2023, a more likely scenario is for rates to plateau rather than fall from the mid 3pc to 4pc range," the outlook report predicted.
Rural Bank has anticipated a return to "closer to average weather conditions" in the first part of the year, with the current La Nina and positive Indian Ocean dipole meteorology patterns expected to fade by February.
The past year's wetter than average conditions had produced above average cropping production, despite the losses and quality downgrading caused by persistent rainfall and flood events.
Horticulture production forecasts remained above average, regardless of vegetable crop damage in Victoria and fruit and almond orchard inundation along the Murray River.
On the livestock front, lamb and calf numbers were expected to keep increasing on the back of a third good season and flock and herd rebuilding.
Livestock price subdued
Subsequently, however, the increased beef, lamb and wool production would be a key factor in subduing price forecasts.
Bigger volumes and softer beef cattle prices were likely to lift export trade opportunities to Japan and Korea and domestic beef consumption, although higher end beef products would be challenged by inflationary pressure on local consumer spending.
In the north, restocker demand was set to remain firm as herd rebuilding continued to take advantage of good pastures.
Dairy produce demand globally was looking uncertain, with overseas production rising marginally, while at home elevated input costs meant profit margins for farmers remained slim, despite high prices.
Sheepmeat export opportunities had good potential to expand with improved export access to India and the UK and other longer term growth trends.
Wool under pressure
Wool markets, however, were expected to see greater volumes and discounted prices, compounded by falling export demand because of depressed economic conditions overseas.
Frustratingly, the end to travel restrictions between Australia and New Zealand had not eased the shearer shortage, which remained an ongoing industry challenge.
Rural Bank's Mr Smith said high production costs would likely remain an ongoing challenge for all producers with input prices and the labour expenses tipped to remain elevated.
Overseas visitors arriving on working holiday visas remained well below pre-pandemic levels.
"Geopolitical uncertainty is supporting global grain prices and Russia's ongoing invasion of Ukraine is expected to continue driving volatility across grain and oilseed markets as uncertainty around exports from two of the world's largest grain producers continues," he said.
"Trade relations with China may potentially move in a more positive direction following recent high-level talks, but punitive tariffs with China remain in place.
"Any thawing in trade relations is expected to be slow."
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
