Ag heads into 2017 on an optimistic note

With the exception of a few sectors where global and local markets have savaged farm incomes –  notably the southern dairy industry –  farm bank balances are healthier than a year ago, livestock prices are holding strong and seasonal conditions and irrigation water storages have improved considerably in 2016, particularly in the eastern states.

Graingrowers are also wrapping up a record 52.4 million tonne crop winter grain crop, which has helped compensate for dismal global wheat prices and aggressive competition from new forces in the international trade.

After 12-months the Australian dollar is also dipping again, boosting prospects for grain, meat, horticulture, dairy and fibre exports.

As an indicator of just how much farm finances have improved, utilisation of funds available in Rural Bank’s customer working capital accounts is currently running about 10pc below levels of a year ago.

“Across the board 2016 has seen overdrafts and working capital accounts paid down,” said the bank’s agribusiness general manager, Andrew Smith.

“We’ve seen some significant above average inflows into cattle producer accounts and general balance sheet rebuilding. 

“Queensland producers in particular have finally been able to pay more attention to short-term debt during the past year.”

“We’ve also had four years in a row of rising lamb prices and despite the traditional pinch in spring market values, gross margin returns have remained pretty good.”

Mr Smith said regardless of lacklustre cereal prices, graingrowers were still expected to be big post-harvest contributors to farm management deposits (FMD) in autumn.

The national FMD pool peaked above $5 billion for the first time in June, beefed up by the last financial year’s livestock earnings.

“There are a lot of reasons to be relatively positive at the moment and that’s being reflected in the off-farm agribusiness sector’s mood, and in many producer categories,” he said.

“Most price points are trending in positive directions, most of the country has gone into summer with a good grazing vegetation cover, and quite a few farmers have consolidated their banking position in 2016.”

The bank, which has a strong family farming and family corporate customer base, representing about eight per cent of the agricultural banking market, also expects rising property sales activity in autumn, particularly in Western Australia, Victoria’s Wimmera and Western District and the NSW Riverina.

Queensland’s AgForce president, Grant Maudsley, said despite the state still nervously awaiting its first widespread summer rainfall break in up to four years, the picture was “far more exciting than a couple of years ago”.

“We’re getting a bit of cash flow in the beef industry and many graingrowers have just had their first harvest income in several years,” said Mr Maudsley at Mitchell.

“We’ll need a run of good years to see long-term debt chiseled back, but at least interest rates are relatively favourable at present.”

Winter rain and return to good herbage growth and near record grain crops in Queensland had made economic conditions “a lot more comfortable” in the past six months, although recent 40 degree temperatures had everybody “getting nervous again”.

Farmers are uneasy about the Bureau of Meteorology forecast for a hot and dry summer-autumn in eastern Australia.

Another drawn-out hot summer risks eroding the good pasture gains of the past six months and draining soil moisture conditions for northern dryland summer crops and prior to sowing in winter crop blocks.

However, further south planting conditions are still likely to be good by autumn said Australian Crop Forecasters managing director, Ron Storey.

“From the Riverina to South Australia it was a very wet spring so they’ll be pretty well set up with residual moisture for next cropping season provided the autumn break comes on time and summer isn’t too dry,” he said.

Prospects were more uncertain for the important North West NSW crop north of Coonamble and Walgett, which added about 3m tonnes to this summer’s wheat harvest after a long-awaited late rainfall break hit in June.

Mr Storey said a weaker Australian dollar –  nearing US70 cents after sitting around US76c for much of the year –  had added more than $20 a tonne to export wheat values in the past month.

New significant competition from the Black Sea region exports had also become a little less competitive in November and December because of pressure on eastern Europe export costs to Asia.