Australian agriculture is on a strong path, but headwinds are mounting and downside risks are considerable in 2019, according to a just-released industry report.
Rabobank’s Agribusiness Outlook 2019 reveals that Australia’s agricultural industries are set to enjoy rising offshore demand and improved market access in the years ahead, while reaping the benefits of growing investment in the sector.
However, it warns there are ‘‘many cyclical and short-term factors’’ which will affect the sector, including climate and the global economic outlook.
Lead author and RaboResearch general manager Tim Hunt said the next five years would see continuing growth in demand for Australian agricultural produce in global markets, with an additional boost from improving market access as a result of free-trade deals with China and Japan.
The report said other positive factors playing out in Australian agriculture’s favour were a weak and falling currency, combined with a strong local price basis, which is ensuring exceptionally-high Australian dollar prices for many key agricultural commodities.
‘‘We expect that a slowing global and local economy, combined with concerns over downside risk, will see Australian exporters enjoy the lowest annual average exchange rate against the greenback in a decade in 2019,’’ Mr Hunt said.
‘‘Meanwhile, the poor 2018 grain harvest, and low beef and sheep herds, will keep the prices for Australian crops and livestock higher than usual compared with world prices over most or all of 2019.
‘‘And with dairy and sugar markets also tightening globally, and wool markets only likely to see a slow retraction from record levels, price will be the industry’s friend in 2019.’’
But Australian agriculture also faces less favourable conditions on many fronts.
Climate factors loom as the ‘‘most obvious’’ problem for the sector in the year ahead, the report says.
‘‘We have opened the year with a majority of eastern Australia in the midst of significant long-term rainfall deficiencies,’’ Mr Hunt said.
‘‘Murray-Darling Basin water storage levels are low and pasture is in poor condition in many grazing regions.
‘‘For winter production to return to average on the east coast this season, above-average rainfall is required in coming months.
‘‘At present, climate indicators provide mixed signals as to whether that is likely or not.’’
Overall, the Rabobank report says, if Australia sees a return to ‘‘something approaching average rainfall, 2019 will bring a decent year for Australian agriculture — with improved production conditions offsetting ‘‘what we expect will be somewhat less favourable conditions’’.
‘‘But Australian agriculture would do well to consider the downside market risks when planning for the next season,’’ the report said.
■Wheat: Global prices will come under pressure during the second half of 2019. Coupled with the new Australian crop supply in the fourth quarter of the year, this will soften local prices, but above-average basis will persist as the local larder is restocked.
■Grains and oilseeds: In an otherwise supportive outlook, a significant bear factor lurks for barley, with an anti-dumping investigation by China into Australian barley exports hanging over the industry’s head, with the potential to disrupt one of the Australian barley industry’s largest trade flows.
■Dairy: There will be ongoing pressure on supply chain margins, with hopes for a better pasture season in 2019-20.
■Beef: Production will be down and prices steady as the sector waits for rain.
■Sheepmeat: Prices are expected to stay strong, but production will ease after a high-slaughter year in 2018.
■Wool: Supply will support strong prices, but the demand outlook is uncertain.
■Wine: Continued growth in export values is expected, but more modest than in recent years, with global macro factors bringing potential downsides.
■Horticulture: The sector’s strong 2018 performance is likely to continue into 2019.