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Economic pressures coupled with weather adversities marked the latter half of 2023 for Australia’s agricultural sector, impacting production and lending.
Drier weather conditions and a decline in commodity prices presented significant challenges, influencing the industry’s dynamics.
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The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) highlighted the substantial impact of climate changes between 2001 and 2020, indicating a notable 23 per cent decrease in annual average farm profits, amounting to approximately $29,200 per farm, in contrast to the preceding two decades.
Despite these hardships, the preceding year saw Australian farmers achieving record-breaking production in 2022, benefiting from favourable commodity prices and seasonal conditions.
Rural Bank’s 2024 Outlook scrutinises six key agricultural domains, projecting that seasonal and trade conditions, along with economic headwinds, will significantly shape the initial half of 2024.
The report noted economic challenges, such as a high rate environment, cost pressures, and low consumer confidence, are impeding the demand for premium agricultural products.
Additionally, global economic slowdowns are anticipated to affect worldwide consumption.
Senior insights manager at Rural Bank, Greg Kuchel, expects the agribusiness debt market in 2024 will be influenced by a number of factors including seasonal conditions, commodity prices, trade and market conditions, and, of course, interest rates.
“Generally, farmers’ confidence in the agriculture sector drives the demand for debt to fund land and capital acquisitions,” Mr Kuchel said.
“As it’s a mixed bag of expectation for the sector in 2024, the demand for debt is expected to remain on the softer side.
“But with the expectation of neutral seasonal conditions and the improved commodity prices and strong export growth anticipated in 2024, demand for debt is expected to see some growth.
“Conversely, the current higher interest rate market will ensure farmers critically assess the expected financial returns from any investments being funded by debt.”
Improved weather conditions
Furthermore, the report highlighted expectations for improved conditions in horticulture, with forecasts indicating a lift in production for fruit and vegetable crops in the first half of the year.
The Bureau of Meteorology forecast the dissipation of the El Niño weather pattern by March 2024 and anticipates a decline in the positive Indian Ocean Dipole (IOD) by late December.
These shifts are expected to restore more average weather conditions to eastern Australia, proving particularly advantageous for the cropping sector during the ongoing winter crop sowing season.
Mr Kuchel added: “We expect to see growing export demand for grains and horticultural produce, improving the outlook for many Australian producers in the first half of 2024.
“Trade conditions are also looking more positive as we continue to expand exports to the UK and India under newer trade agreements.”
Moreover, Australia has seen significant improvements in its trade relations with China, marked by the resumption of barley exports and the anticipated removal of additional barriers.
However, industries like cattle and wine are still affected by existing trade impediments.
Despite these positive developments, concerns linger over below-average soil moisture reserves, underscoring the crucial importance of adequate rainfall during the growing season.
He further noted: “Some challenges are expected to remain, including persistently low consumer confidence and subdued demand for premium agricultural products, such as wool, red meat, and some horticultural products, which is keeping some downward pressure on prices for these commodities.
“Seasonal labour costs remain high with no relief in sight, despite an easing of supply due to high migration and increased working holiday visa approvals.
“Volatile oil output, the low Australian dollar, and other input costs such as fertiliser and diesel prices are expected to remain high, driving sustained elevated production costs.”
Amid these challenges and prospects, the Australian agricultural landscape forges ahead, navigating a complex interplay of economic forces and environmental variables in the pursuit of sustained growth and resilience.
[Related: Agribusinesses brace for looming drought lenders report]
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