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Agriculture Outlook
2019
Australian Agriculture
Outlook 2019 About the research
A new year prompts reflection on the year just passed and what The Outlook 2019 report includes data and outlooks on
might lie ahead. In agribusiness, 2018 will be remembered for below production in Australia, seasonal conditions, prices and
average rainfall up until the last month of the calendar year, the demand. Significant effort has been taken to secure the
smallest winter crop for a decade on the east coast, record high wool most recent data available.
and lamb prices, and high feed costs.
About Ag Answers
This report focuses on 2019 and highlights influential themes for the
year ahead, as well as our expectations for agricultural markets and Ag Answers is a specialist insights division of Rural Bank.
the wider economy. Recognising that good information is the key to making
good business decisions, Ag Answers provides research
In 2019 expect subjects such as Brexit, economic slowdown, trade
and analysis into commodities, farmland values, farm
disputes, European Union free trade negotiations and elections
business performance and topical agricultural issues to
to play a prominent role in markets. For the agricultural sector, the
enable farmers to make informed decisions.
year ahead is likely to be one where production and prices depend
heavily on rainfall. A ‘good’ season would see graziers switch to
About Rural Bank
herd and flock rebuilding, with prices subsequently supported. Also,
the increasing value of horticulture exports and historically low milk Rural Bank has been a wholly-owned subsidiary of
production are likely to be key themes in 2019. Bendigo and Adelaide Bank Limited since 2010. It is
the only Australian-owned and operated dedicated
The price forecasts presented in this report have been calculated
agribusiness bank in the country, providing exceptional
using an Auto-Regressive Integrated Moving Average model. The
financial services, knowledge and leadership for
model projects a range of values based on trend, volatility, cyclical
Australian farmers to grow.
and seasonal patterns in the historic data. The forward estimates are
current to mid-December 2018, future market conditions may cause
actual prices to move across and outside of the forecast range.
This report is intended to provide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). The information herein is believed to
be reliable and has been obtained from public sources believed to be reliable. Rural Bank Limited, ABN 74 083 938 416 AFSL /Australian Credit Licence 238042, a division of
Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL / Australian Credit Licence 237879, make no representation as to or accept any responsibility for the accuracy
or completeness of information contained in this report. Any opinions, estimates and projections in this report do not necessarily reflect the opinions of Rural Bank and are subject
to change without notice. Rural Bank have no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or
estimate set forth therein, changes or subsequently becomes inaccurate. This report is provided for informational purposes only. The information contained in this report does not
take into account your personal circumstances and should not be relied upon without consulting your legal, financial, tax or other appropriate professional.
© Copyright Rural Bank Ltd ABN 74 083 938 416 and Bendigo and Adelaide Bank Ltd ABN 11 068 049 178
Economy GDP growth – world
(year-ended)
8
The 2018 calendar year commenced with relatively high optimism
amid synchronised global growth, and in January we saw stock 6
Percent
Much of this divergence can be linked to US trade policy, which 2
admittedly was consistent with President Trump’s election
0
promises, but its impact was underestimated by the markets.
-2
Global growth is likely to average just below four per cent over
2018, which is the fastest pace seen since the 2010/11 rebound -4
post the financial crisis of 2007/08. However, growth appears 2002 2006 2010 2014 2018
to have peaked around this level. Advanced economies have World** Major trading partners*
achieved a growth rate of around 2.5 per cent this year, and
emerging economies closer to five per cent. Beyond the impact
of trade tensions, the global growth trajectory is challenged by
Base metals, rural and oil prices
rising US interest rates (which in turn have impacted funding (weekly)
costs for a range of markets) and uncertainty in the European 175 150
Union, especially related to Brexit negotiations and the new Italian
government’s fiscal plans. 150 125
Commodity prices had been holding on to solid gains in the first 125 100
US$/b
Index
half of the year until a sharp sell-off in the oil price in October,
100 75
which coincided with another bout of volatility in equity prices.
The lower oil price appears to be driven by higher than anticipated 75 50
production, rather than just lower expected demand next year.
50 25
This may not be predictive of an even sharper slowdown, but it is
likely to keep inflation around the globe subdued at a time most 25 0
central banks would prefer to see a higher inflation rate. This fall 2008 2013 2018 2008 2013 2018
in oil prices coincided with a decrease in bulk commodity prices, Base metals* Rural* Brent oil
although Chinese steel production demand is persistent.
Looking ahead to 2019, the expected themes for the global
While we may face the prospect of a slowing global economy, it is
economy include:
decelerating from a recent high. The path of the US dollar as their
• Trade developments and economic policy responses arising cycle approaches a possible turning point is going to be important.
from the US – China dispute, which may include China As US rates rise, the US dollar should remain strong, but if the US
placing on hold measures addressing debt, shadow banking economic cycle peaks more quickly it may also cause a volatile
and risks in their property market, some of which may impact reversal. Volatility in equities is likely to match this trend.
commodity prices.
The domestic economy appeared healthy in 2018, exhibiting
• The US stock ‘bull market’ is approaching 10 years, which strong economic and jobs growth, but failed to deliver in a number
is a record-long upswing. As US rates rise there is a growing of other areas, especially asset prices and household wealth.
risk that this cycle may be drawing to a close, which would Annual Australian GDP growth picked up to 3.1 per cent in the
add volatility to a range of markets. US official interest rates second quarter before slowing in the third quarter to 2.8 per cent.
are likely to rise to around three per cent next year, which While its recent downward revision was a surprise, growth still
will challenge equity valuations, and the accelerating pace compares favourably to Australia’s international peers.
of technology disruptions will add further volatility to valuing
The jobs market also performed strongly throughout the year, with
businesses.
an increase of around 25,000 jobs per month on average and the
• Brexit, Italy and a rising populism in the EU may also add to unemployment rate improved from 5.5 per cent at the start of the
volatility. Also, the European Central Bank is expected to end year to five per cent, its lowest level for over six years. Despite the
their asset purchase program and to exit negative interest falling jobless rate and a rising participation rate, wages growth
rates later next year. A decade on from the financial crisis, the was the missing link indicating that there was still spare capacity in
unwinding of stimulus is still evolving. labour markets.
Avg. 1.9%
$ ’000
$ ’000
120 650 Perth Brisbane Canberra 650
The Wages Price Index rose marginally this year. However, real • Infrastructure investment and public spending: the infrastructure
average earnings, after years of close to two per cent gains in real pipeline is already at high levels and is likely to build over the
terms driving improved standards of living, have barely improved course of 2019, which should help the private sector and jobs
since 2013, so wages growth is not keeping ahead of living costs. growth.
This disconnect between economic growth and perceptions of
• The Federal election may cause uncertainty to build around
household wealth is not being helped by falling asset prices, most
changes to policy, including changes to negative gearing, capital
notably housing prices and equity markets. While housing prices
gains tax concessions and franking credits.
are not falling in all areas, and there is considerable variation
between capital cities and between regional properties, the decline • The global slowdown and trade challenges leaves the outlook
in Sydney and Melbourne is significant. From peak to trough, for China and other key trade partners in doubt, although we
Sydney is now off 9.5 per cent, close to its record decline in 1989 still expect China to achieve a soft landing and still show strong
to 1991, and Melbourne is similarly down 5.8 per cent on average demand for agricultural products.
since its peak in November 2017. These falls need to be put into
• The tightening in lending standards which has been underway
the perspective of the preceding rises, and thus far have mainly
for some years via APRA regulatory policy (enforcing lower
been driven by falls in investor lending rather than ‘owner occupier’.
levels of investor and ‘interest only’ lending) may start to spread
All the same, softening housing markets may be indicative of risks
from the housing market to having an impact on business
ahead in credit growth, and also risks to household consumption
lending (SME and agribusiness), in the wake of the Royal
and discretionary spending. From an agricultural perspective, farm
Commission into Misconduct in the Banking, Superannuation
land as an asset class has averaged annual growth in median
and Financial Services Industry.
price per hectare of 5.2 per cent nationally over the last five years.
Strong competition for farm land driven by fewer listings is leading Looking towards 2019, the lower level of the Australian dollar is
to higher prices, a trend that looks set to continue into 2019. likely to continue to help export markets, and given the benign
outlook for inflation (especially with the recent fall in the oil price),
Other emerging themes for the domestic economy in 2019 include:
the RBA official cash rate is likely to remain at its current record
• A budget surplus is likely to be announced on the early low for much of the year. Growth is likely to be a little slower and
Federal Budget date of 2 April. This earlier date is due to the offshore risks abound.
Federal election likely to be held in May. Being back in surplus
underscores the relative strength of Australia’s fiscal position
and Australia’s relatively low levels of government debt (as a
percentage of GDP).
500 where the US has very low market share. Export markets will
400 experience competitive pressure, but the strength of demand
300 should give some assistance to domestic prices in Australia.
200 Seasonal conditions will be the most significant factor driving
100 the direction of prices in 2019. Dry conditions would see prices
continue to ease and follow the lower 68 per cent confidence
0
interval, falling below 500c/kg. Significant rainfall would see
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demand pressures until late 2019.
Barley markets have followed a similar trend to wheat in 2018, 95% Confidence interval 68% Confidence interval
with Port Adelaide feed barley values up 45 per cent year-on-year.
China’s recent anti-dumping investigation into Australian barley
exports has brought an air of uncertainty to barley markets. In summary, domestic feed markets are expected to be the key
While these claims are not expected to be upheld, China is a driver of values in 2019. An estimated 3.5 to four million tonnes
significant trade partner accounting for 75 per cent of Australia’s of grain will be brought in to the east coast from South Australia
barley exports in the 12 months to October 2018. Continued and Western Australia over the 12 months to October 2019, in
access to the Chinese market will be a key determinant of barley order to meet domestic demand ahead of the 2019 season crop.
values in 2019. A return to average conditions would see an Australian wheat
crop in 2019 of 24 to 25 million tonnes, a 50 per cent increase
Oilseed markets, and soybeans in particular, remain weighed down on the 2018 season, but five per cent below the five-year average.
by the uncertainty of the China – US relationship. This pressure Notwithstanding any significant developments in offshore markets,
has also spilled over into global canola markets. In 2019, we will be we would expect the current price environment to continue into
paying close attention to growing season conditions in Europe and late 2019 when the new season crop, if successful, may bring
Canada, which account for a combined 55 to 60 per cent of global some supply side relief to the domestic balance sheet.
canola production.
The Indonesia – Australia Comprehensive Economic Partnership
In pulse markets, Indian import tariffs remain a key challenge Agreement is expected to come into effect by 2020. This will
to values. Australian trade officials in India see no easing of include provisions for duty free imports of up to 500,000 tonnes of
trading restrictions until the end of 2019 at the earliest. Although feed grains from Australia to Indonesia, increasing by five per cent
Australian chickpeas have been able to find homes in alternate annually. While Indonesia has typically been an important trade
export markets (including Pakistan and Bangladesh) burgeoning partner for Australian milling wheat, Indonesia consumes 17 to 18
global stocks of lentils have driven strong competition in export million tonnes of feed grain annually. For this reason, feed grain
markets. In the absence of opportunities into India, lentils continue markets in Indonesia could present a significant opportunity for the
to price as a protein source in domestic feed rations. Domestic Australian grains industry over the longer term.
feed markets also continue to underpin values for lupins and
field peas.
Faba bean values shot to new heights in 2018, reflecting strong
Egyptian demand for Australian product against a backdrop of
poor production globally. We expect Australian values to ease in
mid-2019 following the harvest of the new season crops across
Europe.
AUD/tonne
to more favourable seasonal conditions combined with higher farm
gate milk prices, and South Australia is continuing its return to 3,000
2015/16 supply levels.
2,000
Looking ahead to the first six months of 2019, we expect the
Global Dairy Trade skim milk powder price to average around 1,000
$2,600/tonne, 2.2 per cent lower than the current December
0
price. The average Global Dairy Trade cheddar price for the first
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half of 2019 is forecast to be $4,100/t, which is 4.9 per cent lower
than the current December price. Downward price pressure is
95% Confidence interval 68% Confidence interval
expected to come from increased milk production in New Zealand.
This will be partially offset by more modest growth in milk supply in
the EU and a decrease in supply from Australia.
Export demand has become more consistent – driven largely by
China. With milk supply falling, the scenario for Australian exporters Cheese prices are expected to decline
is essentially doing the same volume of trade with less milk. This in 2019 due to increasing production
creates strong competition for milk and the prospect of higher farm 7,000
gate prices. Milk powder exports for the 2018 calendar year are 6,000
expected to finish 2.6 per cent higher by volume, driven by a 14 per
5,000
cent increase in exports to China. The volume of cheese exports is
AUD/tonne
expected to end 2018 1.2 per cent higher. Demand for exports is 4,000
expected to remain stable in 2019 however volume and value of
3,000
exports could be lower due to falling milk production in Australia.
2,000
We are expecting an average farm gate milk price of $6.10/kg MS
1,000
in southern dairy states this financial year. However, given supply
is low, the average price could climb further. Before the milk price 0
drop of 2016, the farm gate price averaged $6.24/kg MS which
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isn’t far away from the current average indicating milk prices are
trending higher. 95% Confidence interval 68% Confidence interval
100 200
90 150
80
100
70
60 50
50 0
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higher and favourable seasonal conditions are expected to lift
yields. International demand is strong particularly from China and
Japan. The volume of exports to China were 1.4 per cent higher in 95% Confidence interval 68% Confidence interval
The value of Australian fruit exports is The value of Australian table grape
experiencing year-on-year growth exports has plateaued
900 450
800 400
700 350
600 300
Million AUD
Million AUD
500 250
400 200
300 150
200 100
100 50
0 0
2015 2016 2017 2018E 2019F 2015 2016 2017 2018E 2019F
Million AUD
2019. There may be further upside if volume increases to key
markets, such as India for almonds and China for macadamias. 600
Macadamia exports were down 12.6 per cent by volume in 2018 400
due to lower quantities being exported to Vietnam and China.
200
Export price per kilogram has increased particularly for shelled
macadamias, up 24.5 per cent to $22.38/kg compared to 2017. 0
This is largely due to increased demand from Japan which is a 2015 2016 2017 2018E 2019F
high value market compared to China.
Almond exports have increased 2.5 per cent by volume in 2018
driven by demand from China. Price per kilogram is up by 14.1
per cent compared to 2017.
Almond milk is the fastest growing category in the non-dairy
milk market. As consumers transition to almond milk, it would
be reasonable to assume that their preference will be directed
at almond milk made from Australian almonds. While this may
not produce market shifting growth for Australian almonds in the
short term, it will aid demand diversity by providing an additional
use for almonds.
600 above 700c/kg. The seasonal trend in lamb prices means they
500 will drop below 700c/kg at times, but expect to see a seventh
400 consecutive year of growth in the average annual price. Mutton
300 prices are expected to see a greater increase than lamb prices,
200
driven by a larger decline in supply. Expect to see mutton prices
regularly exceeding 500c/kg.
100
0
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The volume of wool bales offered The EMI is likely to remain supported in 2019
is trending lower
250,000 2400
2200
2000
200,000
1800
EMI c/kg clean
1600
150,000 1400
1200
100,000 1000
800
600
50,000
400
200
0 0
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