After an "exceptional" 2022 saw agricultural productivity and most commodity markets deliver bumper farm income results, Rabobank says there's a good chance of another big year ahead for farmers.
But the agribusiness banker warns, for many reasons, Australia's 2023 farm earnings will be "some way off last year's record".
Rising interest rates, softening livestock markets, a deteriorating global economic outlook, drier weather patterns, inflation and more farm input cost hikes would most likely cancel out the chance of further record high farm incomes.
"This year will bring many opportunities, (but) those with overly-inflated expectations of a repeat of 2022 might be disappointed as the world heads into recession," said Rabobank's Australian and New Zealand head of research, Stefan Vogel.
He said farm commodity prices would still be well above the five-year average, but tracking at less elevated levels than last year.
Global wheat and barley stocks were still historically low, which would comfort for grain growers, but 2023 began with bigger local and overseas canola stocks than a year ago, cotton prices were set to stabilise below 2022's record highs and global sugar stocks were returning to a surplus.
The resurgence in local dairy profitability was tipped to continue, despite overseas milk production rising, and wool demand looked likely to revive, but lamb markets would be subdued by record production.
Beef cattle prices were set to level out to average 800 cents a kilogram on the Eastern Young Cattle Indicator as demand reflected softer economic conditions and numbers sent to slaughter grew 10 per cent.
Releasing its flagship Agribusiness Outlook 2023, lead author, Mr Vogel said fortunately a standout 2022 had put Australia's farm sector in a healthy position for the year ahead.
The industry had achieved "record high farm incomes across the country, well above the already very good 2021 results", despite widespread wet weather setbacks, including severe flooding in some regions.
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Rabobank's outlook noted beef, dairy, grain, oilseeds and canola prices all hit "excellent highs", even breaking records, last year, while plenty of rainfall ensured many farmers also produced "good to excellent" volumes.
The bank's rural commodity price index peaked in 2022's second quarter, spiking as war in Ukraine coincided with continuing pandemic-related supply chain uncertainty and restrictions.
Australian farmers had cashed in on the positives, despite significantly inflated farm input costs, including fertiliser, energy, machinery and farmland prices, and a return to rising interest rates.
Now, however, grain, oilseeds and beef markets were notably below last year's highs.
The year ahead was likely to deliver "good, but not record, prices in an environment of elevated costs and global recession", the report said.
"We don't see right now that 2023 will suddenly be filled with a lot of product in these commodity sectors, but rather a gradual recovery," Mr Vogel said.
"That's good news for Australian farmers, although it doesn't bring us back to the all-time price highs we had driven by the Ukraine war."
However, farm costs were tipped to stay above historic averages, too, even though global fertiliser prices had almost halved their 2022 peak.
He said domestic prices had not replicated the extent of overseas falls, but the fertiliser price highs seen last year were unlikely.
Labour shortages and supply chain disruptions would persist and, despite some container freight cost cuts, meat and fruit exports relied on refrigerated container networks where rates remained very high.
"Ag businesses need to continue to plan early and remain flexible in 2023 as we will still see delays in delivery of machinery and other farm inputs," Mr Vogel said.
Rabobank has forecast rising interest rates still having some way to go before mid-2023 and being unlikely to reverse towards serious cuts until 2024.
Our dollar was likely to be slightly less export friendly as it strengthened later in the year, but the outlook report said Australia should avoid a recession, even though inflation was a concern locally and globally.
"Heightened interest rates are tightening the belts of consumers and this will impact both consumer demand and trade," Mr Vogel said.
On the productivity side of the ledger Rabobank noted weather conditions in 2022 had left good soil moisture levels and full irrigation storages.
"While the rainfall outlook isn't as high, this should also mean less weather disruptions for the sector," the outlook report said.
"This sets the scene for another positive year of farm production in 2023, however a repeat of 2022's abundant grain and fodder production is not - at least yet - expected."
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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).
