The “Good times” are set to continue for Australian agriculture, but a repeat of the “stand out” 2022 year are unlikely writes Stefan Vogel*.
2023 is shaping up as another strong year for Australia’s agricultural sector, although a repeat of last year’s “exceptional” performance is unlikely.
In its flagship industry outlook: Australia Agribusiness Outlook 2023, titled ‘Continuing on a successful path’, Rabobank states a stand-out 2022 – with high, often record, commodity prices and good to partly-record production volumes – has put the nation’s farm sector in a healthy position for the year ahead, allowing for “record high farm incomes across the country, well above the already very good 2021 results.”
But the report cautions against expectations of a repeat of last year’s stellar conditions in the agricultural sector, which were overall “exceptional”, despite the impacts of severe flooding in some regions.
Beef, dairy, grain, oilseeds and canola prices all hit excellent and often record levels in Australia at a time when our farmers produced good to excellent volumes. This was a fantastic combination which allowed Australian farmers to cash in because these factors far outpaced the significantly elevated cost of fertilisers, energy, interest rates and farmland.
2023 will bring many opportunities, but those with overly-inflated expectations of a repeat of 2022 might be disappointed as the world heads into recession.
Agricultural commodity prices – last year driven to record levels as a result of the war in Ukraine, supply chain issues related to COVID and labour shortages – as well as global market tightness and volatile input prices – are forecast to track at less elevated levels through 2023, albeit “well above the five-year average” as noted in the report.
Prices for grains and oilseeds and beef have moved notably below highs seen last year, and as stated in the report, 2023 is likely to “deliver good, but not record, prices in an environment of elevated costs and global recession.”
The Rabobank Rural Commodity Price Index – which tracks local prices of key commodities in Australian-dollar terms – is forecast to continue to ease from record highs reached in Q2 2022 over the course of this year, albeit to still track above the five- year average, with a chance of rising again in late 2023.
Cost pressures will continue to weigh on the farm sector, with costs forecast to remain above historic averages, although with global fertiliser prices now down 40 to 50 per cent from their peak. Although locally, fertiliser prices have not as yet fully replicated this extent of decline.
A return to the highs seen in fertiliser prices last year is unlikely, but besides supply and demand, gas and grain prices need to be watched carefully to determine the ultimate direction of fertiliser prices.
The report notes freight rates for both dry containers and bulk have fallen “massively” – back to normal levels – as recession fears weigh on the trade outlook. However, our meat and fruit exports in Australia rely on refrigerated containers and their rates still remain very high, although there are signs they too are easing.
Freight reliability, though, is still below normal. 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.
*Stefan Vogel is RaboResearch general manager Australia and New Zealand and the lead author of Rabobank’s Australia Agribusiness Outlook 2023, ‘Continuing on a successful path’. Contact: Stefan.Vogel01@rabobank.com
