Australian farm production has rocketed beyond expectations, heading to a new record value of $90 billion for 2022-23, but that's about as good as it gets for a while.
Drier seasons, increasing export competition and tighter global economic times are returning to chew into farmgate earnings.
Having leapt to within $10b of the farm sector's much-discussed $100b target for 2030, the value of agricultural production is expected to retreat back to about $81b next financial year.
It will probably slip even further to range somewhere between $73b and $79b in the following four years, according to the national commodities forecaster.
Those production values are still almost $20b higher than the Australian Bureau of Agricultural Resource Economics and Science was talking about back in 2017, 2018 and 2019, but they are a warning to farmers that drought-like weather, persistent inflationary pressures and higher global interest rates are being assumed in the coming few years.
In the meantime, however, ABARES is also tipping our farm exports will set new records at $75b this financial year, fuelled by an exceptionally large grain and oilseed crop and record volumes of wheat, barley canola, cotton and sorghum exports.
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The forecast is also better than the Canberra bureau had anticipated just a few months ago when it predicted exports would be worth $72b this financial year - the first year above $70b.
Despite continuing high shipping freight costs, export activity and returns have been revved up by high global commodity demand and prices which continued to be near last year's 30-year highs.
Australia was reaping the benefits of a third consecutive year of high rainfall, said ABARES executive director, Dr Jared Greenville.
Biggest ever winter crop
Although flooding and waterlogging in parts of eastern Australia disrupted harvest and saw localised crop and livestock losses, exceptional conditions in most cropping areas were set to deliver the nation's biggest ever winter grain crop.
"It shows in the figures," Dr Greenville said.
"We've seen record levels of production driven by exceptional growing conditions and high commodity prices.
"The winter crop is estimated at a new record of 67.3m tonnes in 2022-23, beating last year's record by 4m tonnes."
Western Australia and South Australia had made up for eastern states setbacks to produce exceptional yields, resulting in new records for wheat and canola and probably the third largest barley harvest on record.
"High values of livestock production also contributed to these record numbers, with producers increasing their output while also benefiting from historically high prices," Dr Greenville said.
Leaner years ahead
However, ABARES is bracing for drier, leaner times ahead, warning the prospect of El Nino weather patterns replacing the past three years' La Nina conditions was likely to create productivity and balance sheet pressures for producers.
For example, the combined area planted to prominent irrigation crops, grapes and cotton was projected to shrink by a third by 2027-28 as a drying scenario accelerated adjustment across the farm sector, pressuring lesser productive enterprises to consolidate.
ABARES calculated the cumulative impact of drier conditions and macroeconomic pressures on global demand could slash the value of Australian agricultural production by as much as $37b over the next five years.
In the coming financial year alone the value of crop output was tipped to slide by about $8b, to $46b, as the winter crop lost about 30pc of its worth; livestock output was expected plateau at about $35b, and horticulture could increase by $2b in value to a record $18.2b.
While good soil moisture conditions and high water storage levels would continue to support production, and the past three years had created a buffer which helped farmers recover from the last drought, Dr Greenville said the shift to a drier climate sequence, combined with global economic uncertainty continuing for longer, would put greater pressure on farm sector growth.
Seasonal conditions are expected to improve in major overseas producing regions which will see major exporters getting back on track in 2023-24.
- Jared Greenville, ABARES
"Recent high international prices have been driven by drought conditions in major exporters and disruptions from the war in Ukraine," he said.
"But seasonal conditions are expected to improve in major overseas producing regions which will see major exporters getting back on track in 2023-24.
"Over the medium term to 2027-28, seasonal conditions are expected to return to a more normal sequence and commodity prices are expected fall."
Financial risks
He said many farmers would be well placed to ride out these domestic and international changes, but ABARES predicted the financial positions and investment behaviour of those remaining in the industry was likely to be affected by the changing risks ahead.
Investment in future production or productive capital would be curbed.
Farmers would be less able to take on debt because lower farm returns were expected.
Producers could also choose to forego planting crops or increasing livestock numbers to minimise farm costs.
In the coming financial year ABARES has assumed the Australian dollar will strengthen from an average around US68 cents in 2022-23 to US72c.
But while a higher dollar reduces the competitiveness of our exports, the bureau noted many agricultural export contracts were negotiated in US dollars and between November last year and January 2023 our products became more attractive for many importers because their currencies actually strengthened against the US greenback.
ABARES noted that if total agricultural production this financial year was calculated to include the nation's forestry and fishery output it would exceed $96b.
And although the next financial year's output was tipped to be worth about $10b less, it would still be the third highest on record.
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