RABOBANK is tipping strong investment flows in Australian agriculture, rising farmland values, a lower dollar and softer fertiliser prices in 2018.
The farm sector banking specialist’s outlook research report for the year ahead forecasts a healthy appetite for investment among farmers, agribusinesses and outside investors and a positive overall performance by the sector.
The just-released Rabobank Agribusiness Outlook noted many commodities experiencing improved market conditions and the sector, as a whole, was “reaping the benefits of a positive global environment”.
For some, notably wine and wool, 2018 was likely to be the best year in a long time.
It said the strengthening global economy – along with other supportive economic and market factors – was helping underpin the positive outlook for Australian agriculture.
“The world economy is travelling well with a synchronised global upswing set to deliver another year of economic growth of about 3.7 per cent, which should flow through to rising consumer demand,” said the report’s lead author and RaboResearch general manager, Tim Hunt.
He said the “positive story” of Australian agriculture had generated considerable investment activity within and outside the sector in 2017 and this was set to continue.
“Farmers and agribusinesses’ own plans to invest are at robust levels across commodities,” Mr Hunt said.
The structural story of Australian agriculture, including population growth and rising incomes offshore, complemented by improved market access for Australian products, was being overlaid by positive cycles in the livestock and wine sectors, in particular.
Significant investment in agricultural technology would also continue at corporate and start-up levels, he said.
Increased investment appetite in the ag sector was also manifesting in a significant rise in the value of agricultural land.
“Land values have been rising in many areas, particularly since late 2017, underpinned by improving prices in a number of commodities and growing appetite for expansion in others,” Mr Hunt said.
While Rabobank tips the Australian dollar’s movements this year could be hard to forecast because of mixed signals surrounding the outlook of bulk commodities and the state of the domestic economy, the bank expects the currency to soften towards the end of 2018 to a 12-month position of US75 cents.
“Not the best start to the year for exporters with the dollar starting the year stronger, but the only saving grace is that the strength in the currency is largely on the back of a weaker United States greenback,” the agribusiness outlook said.
“This means many competing exporters are also feeling the pain.”
Mr Hunt said while the dollar had risen sharply in early January, it was not too strong to compete in world markets “and we expect it to soften”.
Low interest rates would also ensure competitive financing costs.
The agricultural input market was also generally supportive for farmers.
Fertiliser prices were relatively low, despite a sharp lift in late 2017 and extra global supplies of ammonium phosphate from Saudi Arabia and Morocco suggested prices would be bearish by the second half of this year.
Good irrigation water availability at low prices in the southern Murray-Darling Basin and feed available for the livestock sector were also positives.
Meanwhile, international freight rates were on the rise globally – increasing the cost of shipping produce to market – which could help restore some of Australia’s competitiveness in grains markets closer to home, in particular South-East Asia.
While climatic conditions remained a risk, the local weather outlook was benign, with no over-arching major climate force to “fear or celebrate”.
Other risks for the sector, however, included geopolitical tensions and China’s debt situation.
In terms of individual commodities, recent stellar performers wool and wine were tipped to stay strong into 2018.
Wheat prices would, however, continue to be weighed down in 2018, following another record year of global wheat production in 2017 and with forecast global 2017-18 ending stocks set to reach a new record of 273 million tonnes.
Prospects for market strengthening had emerged, with Rabobank forecasting a limited price appreciation in the global wheat benchmark during the year.
Barley prices were more positive and likely to stay elevated thanks to the lowest global ending stocks in more than 30 years and strength in Australian livestock markets.
Dairy’s road to recovery was resuming with trading conditions for dairy farmers to be “broadly attractive”, although overseas producers were increasing their volumes of exportable dairy surpluses.
Growing global beef (as well as poultry and pork) production, together with increased cattle numbers in Australia, would exert downward pressure on domestic cattle prices.
Beef exports were predicted to stay strong, albeit with the US providing tough competition in key markets, including Japan and Korea and increasingly in China.
Strong sheepmeat export markets and limited growth in global production would continue driving good lamb prices.
Wool’s tight market conditions were predicted to continue through the first half of 2018, helping to support high prices with Australian supplies likel to increase only marginally.
However, declining exports of Chinese wool products and declining US imports of wool products presented some risk to maintaining strong global demand levels.