Good year ahead for Aussie ag

In its flagship annual Agribusiness Outlook for 2021, agribusiness banking specialist, Rabobank, said Australian farmers can expect a generally profitable 2020/21 season thanks to high commodity prices, positive seasonal conditions and low interest rates.

The bank said this places the industry in a strong position to not only recover from the recent severe east coast drought, but also navigate a number of major transitions in the year ahead including recovering from the pandemic, reducing reliance on China and increasing sustainability.

Report lead author, Rabobank head of Food & Agribusiness Research, Tim Hunt, said global demand for food and agribusiness products remained “surprisingly firm” despite the turbulent environment facing the world. 

“And despite the punitive actions of China on Australian agriculture, high agricultural commodity prices, low interest rates and positive seasonal conditions are underpinning a positive outlook for most farmers in 2020/21,” he said.

The world is a “turbulent place” as Australia’s agricultural sector enters 2021, the report said, impacted by factors including the continuing COVID-19 pandemic and lockdowns; the completion of Brexit and the emergence of the US from a tumultuous presidency; as well as continuing trade wars, which are distorting the direction and price of traded goods.

“Market intervention is back in vogue, with grain-exporting countries reconsidering export quota and taxes as they fret over food security, while elsewhere port strikes have impeded trade flows,” the report said.

Despite the challenges, demand for agricultural commodities is being supported, with several major importing countries appearing to be stockpiling to mitigate risk of shortages. Unprecedented support from governments is also helping to offset the impact of the pandemic on employment and incomes therefore spending on food.

“While food service channels remain compromised in many markets due to pandemic lockdowns and restrictions, the otherwise strong demand for food and agri commodities is seeing global prices supported – which is good news for Australian farmers,” Hunt said.

Weather has also finally turned in favour of Australian farmers, the report said, “with mother nature dealing Australian farmers a winning hand”.

Above-average rainfall in 2020 had set up a very good winter crop along with higher-than-usual moisture to open 2021 and significantly increased storages across the Murray Darling Basin.

“This is improving broadacre farm incomes, boosting locally-grown feed and underpinning better water allocations for irrigators,” Hunt said.

At the same time, while the La Nina weather conditions have been positive for much of Australia, they have “crimped the production prospects of competitors offshore”, with large parts of the US, Latin America and eastern Europe unusually dry, the report added.

“This had helped to significantly tighten international markets and drive up global commodity prices,” Hunt said.

While mother nature is supporting Australian farmers at the moment, the Chinese government appears to be in a less generous mood, the report said, with tensions between the two countries showing no sign of easing.

“Australian barley, wine and timber exports into China remain effectively blocked as we enter 2021, while informal impediments appear to be constraining shipments of cotton and lobsters,” Hunt said.

The loss of some of Australia’s agricultural trade with China is now evident in data, with Rabobank reporting a 33 per cent fall in November 2020 shipments to China compared to the previous year. Although, Rabobank notes, a 10 per cent November month-on-month fall in shipments to China is probably more representative of the impact of the geo-political tensions.

“However, the data to date suggests that many products are still flowing through, with $A800 million worth of food and agri products still shipped to China in November last year and preliminary data showing exceptionally strong wheat exports, at least, in December.” Hunt said.

The report listed three major transitions that the Australian agriculture industry needs to navigate in the year ahead:

“Whether China continues to reduce its purchases of Australian food and agri products in coming years – as we think likely – or not, the risks of supplying this market have definitely increased,” Hunt said.

“2021 will likely mark a watershed year, in which Australia starts to reduce its reliance on China, voluntarily or otherwise.”

On a positive note, prevailing global market settings – with strong demand, limited supply and high prices for agricultural commodities – make this challenge seem less daunting, the report said.

“But reorientation to reduce reliance on China is a multi-year challenge that will still be ongoing when the market cycle inevitably turns again,” Hunt said.

The year ahead would also require a delicate transition as governments look to withdraw assistance measures for consumers that had propped up end demand for food and fibre during the global pandemic.

“If this is messed up, we could easily see demand for food and agricultural products soften during this transition,” Hunt said. 

An increasing focus on environmental sustainability also looms large in 2021, according to the report.

“COVID-19 took the headlines from climate in 2020, but it didn’t alter the commitment of key players throughout the F&A (food and agri) supply chain to mitigate climate change, prepare for its risk and find mechanisms to reduce and/or recoup the costs of adjustment,” Hunt said.

“If the pandemic wanes in late 2021 as hoped, this quest will again rise to the fore, creating both opportunities and challenges.  And it may prove to be the greatest of all the transitions facing the sector.”

For specific commodities, the Rabobank’s 2021 Outlook finds:

Wheat – strong global demand set to keep prices firm through the year.

Feed grain – rising global feed grain demand and supply constraints to support prices in 2021.

Beef – a rebuild year, with favourable conditions triggering increased breeding numbers and reduced slaughter keeping cattle prices firm.

Sheep – lamb prices expected to remain strong but fall short of recent record levels, given weaker demand and increasing lamb numbers.

Wool – a forecast recovery in global consumer demand set to lift prices.

Dairy – strong cause for optimism that profitable market setting will extend into the 2021/22 season.

Sugar – a balanced global 2021 supply forecast, but outlook subject to impacts of La Nina, trade flows and pandemic.

Cotton – production set for sharp recovery, as demand recovers post COVID-19.

Wine – pandemic-related disruptions to food service to continue to influence retail demand for wine, but geo-political tensions with China will put pressure on average export prices.

Horticulture – demand for quality, safe horticultural produce in key markets set to remain strong, but COVID-related labour shortages at home and China trade tensions to “take off shine”

The report also said demand for rural properties will ramp up, pushing up prices further in 2021.