Opportunities and risks for Australian agriculture amid global volatility

Rosie forgets to have lunch in the taxi during planting in Crystal Brook, in central northern Australia. Photo: Linden Price

CONTINUED inflationary pressures, a weaker global economic outlook and the prospect of a wet winter in many of Australia’s producing regions are causing volatility for the agricultural sector.

That’s according to NAB’s May Rural Commodities Report, which reports that despite current conditions, the bank’s Rural Commodities Index* is on track for a 2% rise in May, taking it to a new record.

Senior Agribusiness Economist NAB Phin Ziebell said Australian agriculture faces a number of opportunities and risks due to current global conditions.

“La Niña lasts longer than expected and a negative Indian Ocean Dipole (IOD) will likely bring above-average rainfall to much of the country this winter, with the notable exception of the Indian Ocean wheat belt. Western Australia and south-west Tasmania,” Mr Zibell said.

“This presents an advantage for Australia’s 2022-23 winter crop, but increases risks to global grain production.”

Mr Ziebell said that while Australian farmers are likely to benefit from these circumstances, global food security risks pose a growing challenge.

“World grain prices continue to soar, driven by a confluence of challenges.

“Russia’s invasion of Ukraine, drought in Germany and France, drought in parts of Africa, ban on Indian wheat exports and very mixed conditions in the Americas have all contributed to drive up prices.

“Stocks are unevenly distributed – about half of global wheat stocks are in China – which limits the ability to tap into supply to meet demand. The world needs grain and Australia will be a key source of it in the coming year.

Table 1: Monthly changes in commodity prices based on data from: NAB Group Economics; ABARES; Meat and Livestock Australia; Australian Pork, Ausmarket Consultants, Australian Bureau of Statistics, Bloomberg and Profarmer. * Data from May to May 24. Source: NAB

Mr Ziebell said rising input prices also present a major challenge to global agricultural profitability, although good seasonal conditions and high commodity prices continue to provide a buffer in Australia.

“Overall, our fertilizer index was up another 12.5% ​​in April, more than double its level from just a year ago,” Ziebell said.

“While Diammonium Phosphate (DAP) and Urea denominated in US Dollars (USD) have declined somewhat in recent weeks, we don’t expect much decline this year.

“The World Bank reports that global fertilizer accessibility is at historically low levels, which were last seen in the 1970s and only exceeded during the period of the Global Financial Crisis (GFC) between 2007 and 2009.

“Oil prices continue to show high volatility as markets weigh on the ongoing Russia-Ukraine crisis and falling investment amid lockdowns in China and signs of slowing global growth.

“But with the Australian dollar (AUD) now lower, fuel prices have rebounded; the national average diesel price was 210c/litre last week.

“Our feed grain price index is now rising quite rapidly, following high world grain prices and the falling AUD.”

The index rose 7.8% in April and another 8.9% in May year-to-date.

With continued inflationary pressures making central banks, including the US Federal Reserve, more hawkish, the USD is on the rise.

“Combined with the ongoing COVID-19 lockdowns in China, this presents higher volatility risks for the AUD.”

“The AUD fell below 70 cents US at the start of the month and we see the currency at around 72 cents US by the end of 2022.”

NOTE: The NAB Rural Commodities Index is based on price and production data for 28 commodities and is weighted by their relative size in the Australian agricultural sector.

Source: BAN

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