Australia’s agricultural sector is “moving confidently into 2024”, with an overall positive outlook for the nation’s farmers and agribusiness industries in the year ahead, Rabobank says in its newly-released annual outlook.
The agricultural banking specialist says a combination of better-than-expected seasonal conditions and lower input costs has helped set up the sector for a strong year. And, while agri commodity prices are “well down on the highs seen over the previous two years”, the bank’s price forecasts point to “continued positive farm margins in key agricultural sectors in 2024”.
Global economic headwinds, however, are set to continue, the bank cautions in its flagship Australian Agribusiness Outlook 2024, with ongoing concerns particularly around China’s economy and import volumes, as well as the impact of geopolitical issues on freight. While locally, a tight labour market will continue to present challenges for Australia’s farm sector and agribusiness industries.
Report lead author, RaboResearch general manager Australia and New Zealand Stefan Vogel said the “major agri sectors” were moving into 2024 with a confident outlook, after “El Nino didn’t turn out as bad as feared, with recent significant rainfall received across most farming areas except Western Australia”.
While agricultural commodity prices remain well down from the highs reached in 2022, the outlook is overall more positive for 2024, with the bank’s Rabobank Rural Commodity Price Index pointing to prices tracking at improved levels in the year ahead and near the five-year average.
“Price developments will vary per sector,” Mr Vogel said. “Grain prices are likely to remain under pressure, as markets globally and locally battle with a supply outlook for 2024 that is more plentiful than in past years. For a significant 2024 price upside for grain, the world would need to see weather-related supply shortages arise.”
The beef and sheep price outlook is more optimistic and above the 2023 lows, he said.
“Prices in late 2023 moved up from the lows, but the animal protein sector will continue to work through large Australian production volumes that need to move into quite congested global markets, and the economic headwinds that are expected to continue in 2024 won’t help to much improve global demand. Still, we expect 2024, especially the first half of the year, to see higher beef and sheep prices compared with the second half of 2023.”
Global dairy commodity prices, meanwhile, are expected to “have bottomed”, the bank said and will likely improve in 2024.
“Locally in Australia, while there will likely be some downward price pressure on some parts of the southern dairy region for new season milk from 1 July, domestic markets will provide ongoing support for farmgate prices, and the margin outlook for dairy farmers remains positive,” Mr Vogel said.
Improved input costs
Farm input costs are also set to be lower this year, Mr Vogel said.
“Farm input prices globally – for fertilisers and plant protection products – are forecast to be below last season,” he said. “As Australia imports most of those products and continues to work through local inventories, we remain confident that costs on farm will look better than last year.
“A good part of farm inputs available in Australia last season were still reflecting the cost of Covid and Black Sea war price shocks, but now lower global prices should make their way through to be reflected in Australian inventory.”
The bank expects to see local nitrogen fertiliser costs decline by 10 to 20 per cent and phosphate by 10 to 15 per cent this year compared with 2023 prices.
“Potash has an even higher potential to ease farming budgets, with prices expected to trend down even more than the other fertilisers,” the report said.
Agro chemical prices are also forecast to decline in 2024 – primarily driven by a “massive increase” in Chinese production capacity in the past three years which is seeing the beginnings of a supply glut in 2024, Mr Vogel said.
However, these price reductions may take some time to be felt at Australian farm gates, as older stock makes its way through the system.
While geopolitics and the escalation of international conflicts could result in a big upward swing in energy prices – which would have a knock-on increase in the cost of farm inputs – for now, crude oil prices have remained “surprisingly subdued” despite heightened Middle East tensions, the bank says.
“Our global crude oil price outlook also remains rather modest and well below US 100 a barrel, at least as long as the conflicts in the Middle East don’t spread wider,” Mr Vogel said.
The risk of higher shipping costs and freight delays, though, does remain a concern, with the Israel/Hamas war and the escalation of military activity around the Red Sea leading to soaring shipping prices, especially container freight, and a tightening of global shipping capacity, as increasingly more freight vessels take a longer route around Africa.