2023 is shaping up as another near record year for rural Australia with the gross value of agricultural production forecast to top $90 billion for the third year in a row.
That’s unprecedented and is the ‘good’ news from the La Niña driven wet weather and floods which are persisting in the Gulf country of northwest Queensland and Cape York.
Eastern Australia is emerging from the third year of La Niña weather with waves of high rainfall and extensive flooding.
The war in Ukraine has also boosted commodity prices for much of 2022, including wheat, Australia’s largest agricultural export.
The wet weather and floods disrupted plantings and harvests in some areas but the drier weather since the start of 2023 has helped improve things.
The same rain and floods also disrupted to mining and exports in parts of Queensland and NSW (especially from Newcastle and the Hunter Valley).
And much of this ‘bonanza’ for rural and regional Australia will come from record-breaking agricultural exports in the current 2023 financial year, the government.
The federal government’s Australian Bureau of Agricultural and Resource Economics and Sciences(ABARES) forecasts the value of rural exports to hit a record $75 billion in 2022–23,.
Australia’s winter crop production, driven predominantly by wheat, is estimated to have hit a new record of 67.3 million tonnes in 2022–23.
The total value of production including fisheries and forestry, is due to hit $96 billion, also a record.
“Australia is benefitting from a third consecutive year of high rainfall, and it shows in the figures,” ABARES executive director Jared Greenville said in a statement with the update.
“Once again, we’re seeing record levels of production, driven by exceptional growing conditions and high commodity prices.”
Production of wheat and canola are estimated to have reached new records, Greenville added, with ABARES expecting the third-highest barley production on record.
Total production is expected to be lower in 2023–24, though at $81 billion, it will still be the third highest on record.
Export values will fall sharply to $64 billion, the lowest in three years as the end of La Niña and drier conditions cuts the production of most crops, led by wheat.
ABARES said the value “of crop production is forecast to fall to $46 billion (from a record $54 billion in 2022–23),”largely driven by a fall of around one third of the combined value of wheat, barley and canola production.”
“This is expected to be partially offset by a near $2 billion increase in horticultural production, mainly driven by fruit and nut production and high export prices.
“In contrast, livestock production is forecast to remain relatively steady at $35 billion.
“International prices are also expected to weigh down on the value of production, despite remaining above long–term averages. This is driven mainly by global production recovering after dry conditions in major global grain producing markets.
“If global economic growth declines further than expected, lower demand would likely put further downward pressure on agricultural commodity prices and further reduce the value of agricultural production.”
And ABARES reckons there will be good support from prices and demand, especially from Asia in the next couple years, led by China.
“While they are expected to ease somewhat from the highs of 2021–22 for some commodities, such as oilseeds and red meat, prices are forecast to remain strong through 2022–23. However, wheat prices are expected to peak in 2022–23.
Despite global freight costs falling from extraordinarily high levels in 2021–22, regional freight costs remain elevated. While the freight rate discrepancies create additional challenges for the region, Australia continues to be well-placed to export into major Asian markets, given Australia’s proximity to the region.
This is expected to give Australian exports a competitive advantage over many competitors outside of the region.
Expected strong demand for Australian commodities in international markets in 2023–24, including for agricultural commodities, is likely to put upward pressure on the Australian dollar exchange rate, which may reduce the competitiveness of Australian exports going forward.
Nevertheless, the sector is currently capitalising on exceptional domestic production and strong global commodity prices, and is in a good position to meet these challenges.
In 2023–24, exports are forecast to fall to $64 billion, reflecting lower domestic production due to drier conditions and easing global commodity prices. It is also expected that global inflation will start to ease through the year, although remain at elevated levels.
Global growth is forecast to start to pick up toward the end of the fiscal year and demand from many of Australia’s main markets, particularly China, is expected to grow.
However, as global demand starts to pick up, the upward pressure it would put on prices is forecast to be more than offset by increasing global supply of many agricultural commodities as major producers such as the United States, Canada, Brazil and Argentina recover from dry conditions.
So even as record are broken for rural Australia, it is not a happy hunting ground for many companies – the total value this year around $96 billion might sound a lot, but pales if compared to revenues for iron ore or the value of retailing or financial services.
The listed food companies like GrainCorp, Costa, United Malt, Australian Agriculture, Ridley, Nufarm, Select Harvests, Elders and Treasury Wine Estates have all enjoyed market gains at one stage or more in the past two years and the prospects for an upturn this year look remote.
That suggests that investors will not be too interested in prospects for a record year in 2023 and into 2024.
But there is one company that should be on a watch list – Costa Group, the country’s leading fruit and vegetable grower, packer and distributor. The shares are down more than 9% year to date (the ASX 200 is up just over 5%).
With ABARES predicting a $2 billion rise in the value of horticultural production next year “driven by fruit and nut production and high export prices” means there will be a lot product around.
That means there could be times of overproduction and very low retail prices if the likes of Costa can’t clear product into export markets, so the value of the Aussie dollar will become important for the company and the sector
A sluggish global economy this year and next raises question about demand for some horticultural products such as premium berries and fruit.
Costa Group, though, remains very upbeat about the outlook for this year and beyond.
In its full year results commentary issued last month, the company said:
“Improved weather outlook indicates more favourable growing conditions across our farming portfolio in CY23, the company anticipates a recovery in Citrus performance this year, which will also be enhanced by maturing orchards in Central QLD and Sunraysia (Vic).
“The International season including new China plantings has started positively and the focus on yield, quality and further premium product roll out to offset input cost inflation.
“Labour availability is improving significantly, contrasted with shortages over the past two years. Also benefiting from continuing program of insourcing Pacific seasonal labour.”
