DRY weather, a weakening dollar, cheaper oil prices, China and Australia’s improving farm trade access prospects are likely to be key influences on farmers’ fortunes this year.
Nanjing Night Net

The five key factors feature in a report from agribusiness banking specialist Rabobank, which also tips modest global price rises for milk, cotton, sugar and tight markets for beef and sheepmeat.

Soberingly, the bank noted another prolonged dry year in many parts of Australia was still possible, with there being potential for significant risk to livestock and cropping production in the wake of our third warmest year on record in 2014.

But while rainfall and seasonal conditions are always a challenge for producers trying to anticipate the year ahead, the other four key factors have generally optimistic connotations for 2015.

Rabobank analyst Georgia Twomey said a weaker dollar should lend considerable support to Australian food and agricultural exporters, although a low exchange rate against the US dollar was a double-edged sword.

“A strong US dollar can lead to lower global commodity prices,” she said, also noting many farm export prices “often tend to track in a similar direction to oil”.

A weaker Australian dollar was also likely to make imported inputs and machinery more expensive for farmers and the wider community.

On the other hand lower world oil prices, while they lasted, were generally set to be a boon for farmers, reducing input costs and stimulating global economic growth.

Ms Twomey cautioned that sustained lower oil prices beyond mid-year could hit bio fuel and cotton and wool markets.

While Australia recorded a trifecta of big ticket free trade deals with China, Japan and South Korea in 2014, new barriers may pop up in other parts of the world, hurting global markets and demand for Australian products.

“Watch areas” on Rabo’s radar include Indonesian import quotas for sugar and beef, the continuing Russian trade sanctions and changes to Chinese import policies, particularly in relation to dairy and live exports.

“Lower global commodity prices can also encourage government intervention to protect domestic industries,” Ms Twomey said

Meanwhile, China’s economic growth was tipped to slow to 6.8 per cent in 2015, down about 2pc on the five-year average.

There were also potential negative effects on the global economy if restructuring challenges caused a serious Chinese slow-down.

Weather conditions, not surprisingly, led Rabobank’s key factors list, which highlighted some much-welcome rain across Australia in January.

But Ms Twomey said below average rainfall conditions continued on the horizon for many regions Australia-wide with drought remaining a significant issue, particularly in the north.

“The Bureau of Meteorology (BOM) has forecast a drier than normal first quarter over parts of Australia,” she said.

“While the BOM has just revised down the likelihood of an El Nino event (the system which typically brings dryer conditions to eastern Australia), many areas of the country will require wetter than normal conditions in order to fully recover.”

Elsewhere on the commodity front, Rabobank said big global grain stocks would limit wheat’s upside prices and a lower dollar may help wool values, but sluggish global economic activity would restrain demand.

Wine sales are likely to continue stabilising and benefiting from the significantly lower dollar, while the outlook for fertiliser users was mostly favourable as markets stayed steady on lower price trend lines.

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