RAINFALL will be calling most of the shots for this year’s Australian agricultural industry, according to Rural Bank’s Australian Agricultural Outlook 2019.
With a large portion of the Eastern States being in drought and many other areas having experienced dry conditions, a good season would enable graziers to rebuild herds and flocks, with prices subsequently supported.
For the year ahead, key subjects that are likely to arise and play a role in markets include Brexit, economic slowdown, trade disputes, European Union free trade negotiations and elections.
Also expected to be talking points in the sector is increasing the value of horticulture exports and historically low milk prices.
Although the report stated that 2018 growth rates averaged at about four per cent, which was the fastest pace seen since the 2010/11 rebound after the financial crisis of 2007/8, growth appears to have peaked.
“Advanced economies have achieved a growth rate of about 2.5pc this year, and emerging economies closer to 5pc,” the report said.
“Beyond the impact of trade unions, the global growth trajectory is challenged by rising US interest rates and uncertainty in the European Union.”
Lower cattle supply and continued strong export demand are set to support cattle prices for 2019.
The report claimed supply should be lower than last year as many growers look to manage current herd sizes until seasonal conditions improve.
Import demand is expected to match another record year of beef production and exports.
China is anticipated to drive import growth which will be followed by the traditional markets of the United States, Japan and South Korea.
The Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) is to come into effect and will benefit Australian beef exports to Japan from a 12.5pc tariff advantage over the US.
However the US is still likely to retain most of the Japan and South Korea market share as a result of growth in exports out of the US and tighter Australian supply.
Yet both countries are still said to be high value markets for Australia and high export prices should continue.
Growing demand in China, particularly in the premium segment where the US has a lower presence, is expected to benefit Australian exporters.
Although under competitive pressure, export markets should provide assistance to domestic prices in Australia.
The cattle industry will be heavily driven by seasonal conditions as dry conditions could see prices continue to ease and follow the lower than 68pc confidence interval, falling below 500 cents per kilogram.
Significant rainfall would prompt rebuilding herd activity.
Strengthened restocking demand and tightening of supply could mean prices increase towards the upper 68pc confidence interval of 600c/kg.
If widespread rainfall events are had, subsequent pasture rejuvenation and livestock producers restocking could make for reduced demand for domestic feed grains, which are expected to be the key market driver.
However, the severity of the Eastern States drought, even with rainfall, suggests there to be limited impact on domestic supply and demand pressures until later in the year.
Barley markets have followed a similar trend to 2018 and China’s recent anti-dumping investigation in Australian exports has created some uncertainty in the market.
Continued access to the Chinese market will be a major driver of barley values in 2019 as it accounted for 75pc of Australian barley exports in the 12 months to October 2018.
Close attention will be given to seasonal conditions in Europe and Canada, which account for a combined 55 to 60pc of global production.
Rural Bank has expected milk prices to be lower this season with the 2018/19 production to finish at nine billion litres.
For the first six months of 2019, the Global Dairy Trade skim milk powder price is likely to average at $2600 per tonne, 2.2pc lower than the current December price.
Also for the first half of 2019, the report anticipated the Global Dairy Trade cheddar price to be about $4100/t, which would be 4.9pc down on the current December figure.
Increased milk production in New Zealand is said to cause a downward pressure on prices which will be partially offset by less supply from Australia and a slight growth in supply in Europe.
Demand has become quite consistent, mainly coming from China and with lower supply from Australia, there is the prospect for higher farm gate prices.
The report expected farm gate milk prices to average at $6.10 a kilogram of milk solids.
In 2019 lamb and mutton prices are said to be characterised by tight supply and strong export demand, leading to higher prices.
Rural Bank claimed supply to be lower in 2019 for a number of reasons.
Sheep slaughter rates are likely to be lower than last year as growers will look to manage current flocks until seasonal conditions improve.
The high rate of slaughter in 2018 reduced the national flock, so there will be fewer lambs available in autumn and less ewes to be joined for lambing later in the year.
There are no signs of demand weakening, despite supply tightening.
The US and Middle East will continue to be strong markets but high growth in China means it is set to be the market to watch as 2018 showed very high demand.
Rural Bank anticipated the Eastern States Trade Lamb Indicator (ESTLI) to sit above 700c/kg for much of 2019, but prices will drop below this figure with seasonal changes.
Even so, the report said to expect to see a seventh consecutive year of growth in the average annual price.
Mutton prices are likely to see a greater increase than lamb prices due to more of a drop in supply and are set to regularly exceed 500c/kg.
With similar market drivers to 2018 of tight supply and high demand, the Eastern Market Indicator (EMI) is expected to track within a 68pc confidence range of the forecast of 1750c/kg (80th percentile) for the first half of 2019.
Limited wool supply is expected to continue into 2019 with about six to 10pc less wool expected to be produced in 2018/19 compared to the previous year.
With dry conditions in the Eastern States, it has been difficult to grow the national flock size and could take years to establish a strong growth trend for Australian flock and wool production.
Demand will be largely influenced by the global economy and the report stated that both the US-China dispute and Brexit have potential to undermine global growth and confidence.
This could mean indirect consequences for wool demand.
The China stock market was under pressure in 2018 with the Chinese currency falling by 7pc compared to the US dollar and the Shanghai Composite was dropped by 27pc year to date.
Australian wool auctions commenced this week.
Rural Bank’s outlook for the year ahead suggested growth for Australia’s main agricultural sectors of cattle, cropping, dairy, sheep and wool with all commodities being heavily influenced by rainfall.
Graziers in the Eastern States will be hoping to restock but the dry conditions have created a tighter supply which has increased prices across most sectors, particularly beef, cropping, sheep and wool.
Demand for most commodities is forecast to see growth, with the Chinese markets set to be the ones to watch.
Australian agriculture might also feel the effects of the uncertainty around the US-China dispute, Brexit and elections both in Australia and overseas, which could reduce confidence in the industry.