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Production costs to bite as farmers look to improving conditions in 2023

13 December 2022 |Media release

Australian Agriculture Outlook 2023

Rural Bank’s Australian Agriculture Outlook 2023 report delivers a mixed outlook for farmers heading into the first half of 2023, with global economic challenges and continuing high production costs cited as the main dampeners. 

Following recent bumper seasons, the industry navigated a challenging period through the latter half of 2022 with a third consecutive La Niña event bringing damaging rainfall and flooding on the east coast, impacting producers across a range of agricultural sectors.

The new report analyses the performance of six industries – cattle, cropping, dairy, horticulture, sheep and wool – and anticipates improving seasonal conditions, which combined with high commodity prices, will assist producers to offset potential quality issues, particularly across the cropping and horticultural sectors.

Andrew Smith, Rural Bank Head of Agribusiness Development said: “Four major factors will impact Australian agriculture in the first half of 2023, with seasonal conditions, production costs, trade conditions and global economic headwinds all featuring prominently in the findings”.

“We expect trade conditions to continue improving in 2023 with the UK Free Trade Agreement anticipated to take effect in 2023 and the Australia-India Economic Cooperation and Trade Agreement (IA-ECTA) coming into force this month. Sheepmeat, almond, wool, lentil, and wine producers are set to see the greatest benefits from improved access to the Indian market.

“We see farm input costs persisting as a key issue in 2023 across every sector. Tight global fertiliser supply combined with high fuel and labour costs will weigh on grower margins, however, a generally weaker Australian dollar in comparison to the first half of 2022 should lift the overall competitiveness of our agricultural exports.

“Near perfect seasonal conditions in Western Australia and South Australia has growers on track to produce a record winter cereal crop. Harvest is advancing well with minimal delays at this stage and canola yields are at record levels with very good oil content.

“High production costs are expected to remain an ongoing challenge for producers with input costs and the cost of labour forecast to remain elevated while visitors on working holiday visas remain well below pre-pandemic levels.

“Geopolitical uncertainty is supporting global grain prices and Russia’s ongoing invasion of Ukraine is expected to continue driving volatility across grain and oilseed markets as uncertainty regarding exports from two of the world’s largest grain producers continues.

“Trade relations with China could potentially move in a more positive direction following recent high-level talks, but punitive tariffs with China remain in place and any thawing in trade relations is expected to be slow.

“Supply chain disruptions are also improving at a domestic and global level and a return to more typical weather conditions is forecast, which should see cropping and horticultural production remain above average,” Mr Smith concluded.

Fast Facts and State by State breakdowns

Cattle:

Australian cattle prices are likely to see a marginal fall in the first half of 2023 due to downward pressure from increased supply. A favourable rainfall outlook in most cattle regions means re-stocker demand is likely to remain firm as herd rebuilding continues and good pasture availability prevails. This increased cattle herd will also drive a higher slaughter rate. As a result, beef production is expected to rise by five per cent during the first half of 2023. The forecast rise in supply should lead to more competitive pricing encouraging domestic beef consumption, though inflationary pressures are likely to weigh on consumer spending across higher end beef products.

China is also likely to continue to prefer purchasing from South American markets with a ban on several abattoirs and Australian processers, increasing competition for Australian beef producers. As United States production declines throughout the year, opportunities for Australian beef exports will see more opportunity to expand trade with reliable partners such as Japan and South Korea, likely leading to an increase in export volume. Brazil’s beef production levels are forecast to increase by around one per cent as strong global demand, particularly from China, encourages a rise in supply. Consumer preference for more sustainably produced beef from countries like Australia is expected to further support export opportunities.

Cropping:

All states are set to produce above average yields. Demand for Australian grain will stay strong into 2023 with above average production, strong export demand and high global prices to providing a continued positive outlook for cropping. Australian winter crop production is forecast to be the equal second highest on record however, quality has been impacted by excessive rain on the east coast. With harvest delayed, growers’ top priority remains getting this season’s crop off in a safe and timely fashion.

Global consumption is forecast to outpace production, so strong export demand and tightening global supplies are expected to keep Australian grain prices at historically high levels, giving growers confidence to put in a full cropping program heading into next season.  Wheat production will surpass 30 million tonnes for the third consecutive year, which is unprecedented.

While the current estimate of 36 million tonnes is 6 per cent below last year’s record crop, it remains 43 per cent above longer-term averages. Favourable seeding conditions and high prices saw growers increase area planted to canola by 11 per cent this season and in Western Australia, the area planted to canola actually surpassed that of barley for the first time.

This season is likely to see Australian export market share to the Indian subcontinent, Asia and Middle East decline as these markets return to purchasing canola supplies from Canada. Offsetting this is strong export demand from traditional European Union biofuel customers. Demand from Europe for green fuels could be further enhanced with proposed changes to biofuel mandates in the European Union next year.

Dairy:

The number of farmers choosing to leave the industry combined with the impacts of flooding will see lower total milk supply in 2023. This should see high prices sustained in the coming season, but elevated cost of inputs will keep margins for dairy farmers slim. Australian milk production should decrease, and global supply will increase marginally but remain constrained. Domestic demand will remain relatively flat while a smaller domestic pool with high input costs will see close to record farmgate prices maintained. The trend of smaller producers exiting the industry or diversifying farming operations into beef and sheep will persist, but is set to be tempered by larger farmers expanding operations or increasing herd sizes.

Horticulture:

Horticultural producers will generally see margins squeezed further over the next six months with high packaging, fuel, freight, fertiliser, and labour costs expected to remain a factor well into 2023. Fruit and vegetable prices are forecast to remain well above average across most varieties, though strong production will see prices ease from recent highs as the year progresses.

Improved export market access will hold horticultural exports in good stead. Vegetable producers are expecting some short-term supply shortfalls following a challenging spring and summer planting period that was heavily impacted by flooding and rainfall events.

Potatoes, one of Australia’s most valuable vegetable crops, have been negatively impacted by flooding and heavy rainfall on the east coast. Potato crops throughout Tasmania have seen the largest impact with growers throughout Victoria and New South Wales also affected. This will see lower production volumes into autumn which, when paired with ongoing supply chain challenges, will elevate potato prices.

A wetter than average summer combined with low irrigation costs will drive strong fruit production volumes in the first half of 2023, though recent damaging weather events throughout Victoria will keep volumes of certain seasonal varieties constrained, with quality also expected to be an issue into early 2023. Fruit prices are widely forecast to ease from recent highs, though they will remain above long-term averages with high input costs and a tight labour market continuing to squeeze grower margins.

Table grape production is forecast to significantly increase this season, with exports to Vietnam expected to continue to grow, while the industry is also anticipating a rebound in export volumes to China despite the restrictive ‘COVID Zero’ policy which remains in place. Growth in almond export demand is anticipated due to strong demand from China, complemented by the ongoing diversification of export markets.

Sheep:

Australian lamb supply is set to be higher than a year ago but lower than the surge of supply seen in late-2022. Softer consumer demand due to inflation could be mitigated by improved access to the UK and India. Lower prices are on the horizon but there is still plenty of optimism in the outlook for sheep producers heading into 2023 as a rebuilt flock and wet conditions fuel a period of high production.

Although prices will continue to soften under the weight of supply and some weaker consumer demand, they will remain high from a longer-term perspective. Lamb’s broadening demand base and weaker competitive dynamics should drive long-term confidence in the industry. Demand for lamb will likely soften in both domestic and export markets as economic conditions take their toll on consumer spending. While the US is showing greater signs of softening demand due to inflation, the longer-term growth trend to the US remains strong. Further export growth is tipped to South Korea which has risen to be the third most valuable market for lamb thanks to a doubling in export value across the last two years.

Wool:

Australian wool producers are forecast to see increased wool supply and discounted prices into 2023 as the national flock increases, with volumes forecast to continue increasing for a third consecutive year. Demand will ease due to falling consumer sentiment at both a domestic and global level resulting in downward pressure on prices. Increased stock numbers and wet weather will continue to put pressure on shearing operations which are already being affected by a labour-supply shortage.

The re-opening of Australia’s border with New Zealand in early 2022 has not eased the shearer shortage which will be an ongoing challenge for the industry. Fine wool prices are being challenged by discounts not seen for over 18 months however, fine, and medium wool prices remain above their five-year average, which may indicate scope for further pull-back in the face of reduced demand.

State by State Fast Facts

Queensland:

  • Strong mango production has been seen across most key growing regions of the state with consistent fruit set driving large production forecasts. Harvest across the state is due to continue well into February.
  • Shepard avocado growers are expecting more variable production this season with picking due to kick off in the state during February and run through to May. Flowering was hit and miss this season due to challenging weather conditions. This more variable output is expected to keep Shepard avocado prices well above the lows seen last year.
  • Winter cereal harvest is winding up across the state with many growers enjoying record yields along with good quality. This season’s harvest the biggest in over a decade.
  • Queensland cattle prices are likely to see a marginal fall in the first half of 2023 due to pressure from rising supply. However, a favourable rainfall outlook in cattle regions means re-stocker demand is likely to remain firm as herd rebuilding continues whilst there is good pasture availability.
  • Australian wool prices will continue to come under pressure as demand eases. Finer types are still higher than their five-year average after two strong years. The Northern Market is outperforming the Southern market in the medium and finer types with crossbred types losing value nationally.
  • Wool production has been strong in Queensland with a 20 percent year-on-year progressive gross weight increase as of November 2022. The gains can be attributed to strong seasonal conditions and favourable conditions for shearing.

New South Wales:

  • Lamb producers will head into 2023 with confidence as a rebuilt flock and wet conditions fuel a period of high production. Although prices will continue to soften under the weight of supply and some weaker consumer demand both domestically and abroad, they will remain high from a longer-term perspective. Lamb’s broadening range of export markets and weaker competition should drive long-term confidence in the industry.
  • Low irrigation costs and improving growing conditions will drive improved fruit production more generally in the first half of 2023, though vegetable producers are expecting some short-term supply shortfalls following a challenging spring and summer planting period that was heavily impacted by flooding and rainfall events.
  • Planting of potato crops has been affected by heavy rainfall and flooding which has impacted growers’ ability to get out into paddocks. This has seen short term supply shortages developing over recent weeks. Lower production volumes and elevated prices will continue into early 2023 though supply should begin returning to normal from February/March.
  • Record winter rainfall caused widespread flooding across NSW resulting in significant grain and oilseed crop losses. Harvest is in the early stages with results surprising to the upside for both quality and yield. Growers are delivering a full spectrum of grades including milling wheat and malting barley.
  • New South Wales dairy production continues to be affected by labour availability, industry exits, downsizing and diversification. Production will remain below average in coming months as the impacts of flooding continue to affect supply chains. Production declines are somewhat reduced by larger producers increasing herds and positive seasonal conditions improving volumes. Record farmgate milk prices of around $9.80/Kg MS are encouraging some to remain in the industry despite tough conditions.
  • New South Wales cattle prices are likely to see a marginal fall in the first half of 2023 due to pressure from rising supply as more younger cattle reach the market.
  • Australian wool prices will continue to come under pressure as demand eases. Finer types are still higher than their five-year average after two strong years. The Northern Market is outperforming the Southern market in the medium and finer types with crossbred types losing value nationally.
  • Wool production in NSW is currently three percent less than the previous year in terms of progressive gross weight. Strong seasonal conditions and re-stocking are forecast to increase the national wool clip by five percent in 2023. NSW production delays can be attributed extreme weather events delaying shearing and wool cartage.

Victoria:

  • Low irrigation costs and improving growing conditions will drive strong fruit and nut production more generally in the first half of 2023 across the state, though vegetable producers are expecting some short-term supply shortfalls following a challenging spring and summer planting period that was heavily impacted by flooding and rainfall events.
  • Almond production is also looking strong throughout the Sunraysia region following a relatively successful pollination period with low irrigation costs further aiding growers in the region.
  • Table grape production is forecast to increase this season amidst ongoing maturation of vine plantings and low irrigation costs. Ongoing seasonal labour shortages are expected to continue impacting producers throughout picking. Stone fruit production throughout the state has been impacted by extreme weather events throughout October and November. Apple and pear production has also been impacted by flooding across Victoria’s key production regions including the Shepparton and Goulbourn valleys with supplies to remain constrained into early 2023 as a result.
  • Victorian milk production is forecast to remain below average through the first half of 2023. A continued downwards trend in production is exacerbated by loss of production through flooding, and the effects on the supply chain will continue to hamper any growth. Tight production will see prices remain at near record levels with the 2022/23 farmgate price around $9.30/Kg MS.
  • Victoria also suffered crop losses through its central and northern regions from this season’s flood events. At a state level this will be offset by high yields in the Mallee and Wimmera regions. Harvest will extend into the new year, and it will be some time before the overall quality of the crop is known.
  • Lamb producers will head into 2023 with confidence as a rebuilt flock and wet conditions fuel a period of high production. Although prices will continue to soften under the weight of supply and some weaker consumer demand both domestically and abroad, they will remain high from a longer-term perspective. Lamb’s broadening range of export markets and weaker competition should drive long-term confidence in the industry.
  • Victoria’s cattle prices are likely to see a marginal fall in the first half of 2023 due to pressure from rising supply. The favourable rainfall outlook in cattle regions of the state means re-stocker demand is likely to remain firm as herd rebuilding continues due to strong pasture availability.
  • Australian wool prices will continue to come under pressure as demand eases. Finer types are still higher than their five-year average after two strong years. The Southern Market is underperforming against the Northern and Western markets particularly with medium and finer wool types with quality affected by recent weather events. Crossbred wool is unlikely to cover shearing costs in all markets.
  • Wool production in Victoria is down four percent year-on-year in terms of progressive gross weight. This can be directly attributed to extreme weather events. This may indicate a rush of supply when shearing is able to recommence. Strong seasonal conditions and restocking are forecast to increase the national wool clip by five percent in 2023. Victoria is the single largest wool producing state contributing 30 percent to the national clip.

Tasmania:

  • The development of Tasmania’s cherry crop remains behind schedule following a cool and wet spring which stymied development. Quality remains decent despite challenging conditions with cherry producers in parts of NSW and Victoria seeing higher rates of splitting due to their more advanced development. Harvest will peak a little later than usual this year as a result, with the greatest volumes expected in late January/early February.
  • Tasmanian milk production was expected to remain close to average before heavy rain and flooding impacted production and supply chains. This will see 2022/23 production remain below average, but improved pasture growth will aid in stemming losses. Farmgate milk prices are at record highs, and 2023 opening prices are expected to remain well above average due to tight supply.
  • Lamb producers will head into 2023 with confidence as a rebuilt flock and wet conditions fuel a period of high production. Although prices will continue to soften under the weight of supply and some weaker consumer demand both domestically and abroad, they will remain high from a longer-term perspective. Lamb’s broadening range of export markets and weaker competition should drive long-term confidence in the industry.
  • Tasmania’s cattle prices are likely to see a slight decline in the first half of 2023 due to pressure from rising supply levels. Slaughter rates and cattle yardings are also likely to increase as more younger cattle reach markets from the ongoing herd rebuild.
  • Australian wool prices will continue to come under pressure as demand eases. Finer types are still higher than their five-year average after two strong years. The Southern Market is underperforming against the Northern and Western markets, particularly across medium and finer wool types with quality affected by recent weather events. Crossbred wool is unlikely to cover shearing costs in all markets.
  • Tasmania contributes less than 1.5 percent to the national wool clip. However, this is rising dramatically due to restocking and strong seasonal conditions. Average testing quality of Tasmanian wool is stronger and higher yielding than the mainland.

South Australia:

  • Above average fruit and vegetable production is forecast in South Australia during the first half of 2023 following favourable conditions across the state towards the end of 2022.
  • Almond production is also looking strong throughout the Riverland following a relatively successful pollination period, particularly considering the challenges sourcing beehives this season. Flooding throughout the Riverland leading into Christmas does pose a risk to almond crops, particularly if power to irrigation equipment is switched off. A national crop of between 140,000 mt and 150,000 mt is currently predicted.
  • South Australian cereal crops have benefitted from the mild spring conditions with the export- focused state forecast to produce a record winter crop. The state is expected to produce significant quantities of milling grade wheat.
  • South Australian milk production is forecast at marginally lower year-on-year. Positive pasture growth will see increased volumes per cow, but some flooding in eastern regions, labour availability and industry exits and diversification by smaller producers will see the continued trend of declining production persist.
  • Lamb producers will head into 2023 with confidence as a rebuilt flock and wet conditions fuel a period of high production. Although prices will continue to soften under the weight of supply and some weaker consumer demand both domestically and abroad, they will remain high from a longer-term perspective. South Australian prices should show some greater resilience given the state’s lamb production has remained relatively subdued since 2018 as conditions haven’t been as favourable to support flock rebuilding. Lamb’s broadening range of export markets and weaker competition should drive long-term confidence in the industry.
  • South Australian cattle prices are likely to see a marginal downwards shift in the first half of 2023 due to pressure from rising supply.
  • Australian wool prices will continue to come under pressure as demand eases. Finer types are still higher than their five-year average after two strong years. The Southern Market is underperforming against the Northern and Western markets, particularly across medium and finer wool types with quality affected by recent weather events. Crossbred wool is unlikely to cover shearing costs in all markets.
  • South Australian wool production will continue to increase as favourable seasonal conditions encourage restocking and higher lambing rates.

Western Australia:

  • Above average fruit and vegetable production is forecast across Western Australia during the first half of 2023 following favourable conditions across the state towards the end of 2022.
  • Another strong year of Hass avocado production is expected across the state in 2023 as younger plantations continue to mature (just over two thirds of WA plantations are at full production age). Exports to Japan are also forecast to grow, providing additional demand for the fruit. While prices will remain below longer-term averages, we anticipate they will sit well above last year’s record low prices.
  • Near perfect seasonal conditions sees Western Australia on track to produce a record winter cereal crop. Harvest is advancing well with minimal delays to this stage. Canola yields are at record levels with very good oil content. The large wheat crop will see protein levels skewed towards the lower grades.
  • Western Australian milk production is forecast to be lower year-on-year as the trend of lower production continues. Labour availability, downsizing and industry exits will continue to see the WA milk pool tighten even as larger producers increase herds. Competition for a smaller pool will continue to see high farmgate milk prices in 2023/24, with the 2022/23 farmgate price at record levels around $9.50/Kg MS.
  • Lamb producers will head into 2023 with confidence as a rebuilt flock and wet conditions fuel a period of high production. Although prices will continue to soften under the weight of supply and some weaker consumer demand both domestically and abroad, they will remain high from a longer-term perspective. Lamb’s broadening range of export markets and weaker competition should drive long-term confidence in the industry.
  • Western Australian sheep industry will continue to face structural challenges from the decline of live sheep exports. Live sheep exports from Western Australia have fallen from over one million head in 2019 to potentially less than 400,000 head in 2022 largely due to a cessation of trade during the Middle Eastern summer months. The increased supply of sheep being processed domestically has contributed to the relatively larger decline in WA prices in 2022 compared to eastern states and will likely remain a factor into 2023.
  • Western Australian cattle prices are likely to see a marginal fall in the first half of 2023 due to upwards pressure from increasing supply. A favourable weather outlook in key cattle production regions could hinder significant falls as herd rebuilding continues.
  • Australian wool prices will continue to come under pressure as demand eases. Finer types are still higher than their five-year average after two strong years. The Western Market is having a challenging sale season with notably higher pass-in rates seen with sellers unwilling to accept the prices on offer, preferring to pass-in their lots instead. Demand in China will be watched carefully as the country grapples the ongoing COVID pandemic and weakening consumer demand.

Rural Bank is a division of Bendigo and Adelaide Bank Limited and provides exceptional financial services, knowledge and leadership for Australian farmers to grow.  Rural Bank’s Australian Agriculture Outlook 2023 report gives farmers the necessary insight and analysis to look forward to next year and to understand the key driving forces affecting agricultural markets.

To view the report visit our Outlook page

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