Ag's prospects looking better for 2024 says confident Rabobank

According to agribusiness lender, Rabobank, Australian agriculture's 2024 prospects are starting remarkably confidently, despite a subdued global economic outlook and the risk of more export shipping freight dysfunction, ongoing labour shortages and high fuel costs going higher.

A better than expected seasonal start in many areas and some shrinking key input costs were helping to set up the local sector for a strong year.

Although farm commodity prices were well down on the highs of two years ago, Rabobank's Rural Commodity Price Index has prices tracking near their five-year average, and better than last year.

Australia's major agricultural sectors were moving into 2024 with a confident outlook after the El Nino summer "didn't turn out as bad as feared", said RaboResearch's Australia and New Zealand general manager, Stefan Vogel.

Although still patchy in some regions, the past two months delivered significant rainfall in most farming areas. West Australia was a notable exception.

"Grain farmers are set to plan more optimistically for the purchase of farm inputs and the upcoming planting period for crops like wheat, barley and canola," Mr Vogel said.

"For beef and sheep producers, the outlook for farm-grown feed in the first half of 2024 looks more promising, allowing them to hold on to more of their livestock and go to market with heavier weight lambs, for example."

Global economic headwinds would, however, continue to trouble farm sector markets.

There was ongoing unease about China's economic health and appetite for imports, and geopolitical issues in the Middle East and Eastern Europe were putting pressure on energy and freight costs.

Rabobank's industry outlook for 2024 said the animal protein sector would need to deal with large Australian production volumes and "quite congested global markets".

"The economic headwinds expected to continue in 2024 won't help to improve global demand," Mr Vogel said.

"Still, we expect the first half of the year to see higher beef and sheep prices compared with the second half of 2023."

Global demand weakness would likely constrain wool market rises, but fine micron lines should be more stable and 20 to 23 micron lines were likely to receive healthy demand as the year progressed.

The past year's sluggish global dairy commodity prices appeared to have bottomed, with the bank tipping improvements in 2024 so long as discretionary consumer spending was not further squeezed by more cost of living pressures.

The local milk market would experience downward price pressure in the southern dairy region from July 1, but Mr Vogel said domestic markets should keep supporting farmgate prices, and farmers' margin prospects remained positive.

Grain prices were likely to remain under pressure, as markets battled with a more plentiful supply outlook for 2024 than past years.

Rabo was banking on international prices for fertiliser and plant protection products to be lower than last season, with local nitrogen costs declining between 10 per cent and 20pc on 2023 values, potash falling even further, and phosphate down 10pc to 15pc.

"Although existing local inventories have to be dispersed, we remain confident that costs on farm will look better than last year," Mr Vogel said.

"A good part of farm inputs available last season were still reflecting the cost of COVID and Black Sea war price shocks"

Farm chemical prices were being driven down by a "massive increase" in Chinese production capacity in recent years which may even deliver a supply glut, although price cuts could take time as older stock made its way through the system.

A notable risk with input prices was any escalation in international conflicts which could trigger big energy and fertiliser price movements.

For now, however, crude oil prices remained "surprisingly subdued" despite heightened Middle East tensions.

Rabobank's crude oil price outlook was also calm at this point, and well below $US100 a barrel, assuming Middle East conflicts did not spread.

However, higher shipping costs and freight delays were a concerning risk, with the Israel/Hamas war and escalating Red Sea military activity driving up shipping prices again, especially container freight.

"The good news for now is that shipping costs are still not as high as in the record 2021 COVID-related shipping crisis," Mr Vogel said.

The overall global economic outlook, while better than 2023, was still subdued and Rabobank's report predicted more headwinds for Australian agricultural exporters.

Chinese consumer demand would need more time to get into full swing.

While Australia's trade relations with China improved in 2023, with the removal of Chinese import duties on Australian barley and its tariffs on Australian wine now subject to review, the report said the relationship remained fragile.

Global markets appeared to have learnt to navigate war-reduced exports from Ukraine, with Russia to be a major grain exporter in 2024, making prospects of massive grain market swings, like those of 2022, unlikely.

Locally, interest rates were forecast to plateau for six months before rate cuts towards the last quarter of the year.

The Australian dollar had already reversed the strong gains recorded in late 2023, but was expected to strengthen modestly again by late 2024, slightly relieving some import cost pressures, although not notably hurting our agricultural export competitiveness.