Farmers should brace for some market setbacks in 2017, but most commodity prices look relatively sound, and there’s even room for another interest rate cut says rural lender, Rabobank.
The Trump factor in the US should also eventually push the US dollar up and the Australian currency favourably lower to US72, according to the bank’s agribusiness outlook for the year.
But Rabobank warns of new US President Donald Trump’s capacity to “upset the global trade apple cart”, in particular by souring relationships between China and the America.
The new US administration was bringing “a huge degree of uncertainty about what will be implemented and its impact on the global economy and geopolitics”, said Rabo’s food and agribusiness research head, Tim Hunt.
Trump administration policies may contribute to a rising protectionist trend already evident in recent years in many parts of the world.
Australia, as an export-oriented agricultural producer, had much to lose.
“The Trans-Pacific Partnership in its current form is already dead, taking the incremental gains in market access it included for products like beef, dairy and sugar off the table,” said Mr Hunt, the outlook report’s lead author.
Potential for political tension between the US and China – two of Australia’s largest trading partners – was also high, he said.
Interestingly, however, the US could also win access to China’s beef market in 2017, which would increase Australia’s competition in an already competitive market.
However, the Trump factor should also bring some potential near-term benefits for Australian agriculture.
The new US administration’s fiscal stimulus measures, tax cuts and reduced regulation, could help Australia as they potentially underpinned solid near-term economic growth in America.
A strong US consumer economy would boost demand for our exports to that market.
“These same factors may also drive a stronger US dollar in 2017 which improves the competitiveness of our producers in markets where we compete head-to-head with the US,” Mr Hunt said.
Fortunately, Australia was entering any potential agricultural marketplace storm in “generally good shape”.
Rabobank tipped relatively “smooth sailing ahead” for most commodities and noted the balance of risks was weighted towards another Reserve Bank of Australia interest rate cut “should policy action be required as the year unfolds”.
However, no rate changes were expected anytime soon.
Conversely, US interest rates were likely to see at least one rise later in the year.
The strong commodity performers were set to include sheepmeat, wine, wool and potentially beef, if herd rebuilding activity could outpace the downward pressure from “mediocre global prices”
Fruit and nut production was likely to continue surging after export markets topped $2 billion in 2015-16 and the global dairy market recovery was tipped to see a return to sector profitability in 2017-18.
Rabobank warned Australia’s milk supply would end 2016-17 at its lowest levels in 20 years, but even as profit margins improved and new regional processing facilities were commissioned farmers were likely to be cautious about expanding the national herd.
Sheepmeat exports were expected to stay strong, with lower US stocks and drought in Inner Mongolia supporting US and Chinese demand.
Significant headwinds in local and global wheat markets were likely as record high stocks continued to accumulate globally, limiting chances of much price improvement.
At an exchange rate of US75c Australian wheat prices could lift gradually in 2017 to $225 a tonne, based on an peak in Chicago values of US460 cents a bushel by late 2017.
After a star performance last year the sugar outlook for 2017 was not as sweet because demand was being matched by rising Brazilian and Asian production.
However, business intelligence analytical group IbisWorld has ranked sugar processing as one of the top five Australian industries “set to fly” in 2016-17, with a 20pc rise in revenue growth to $3b.
It noted local sugar production was forecast to rise 3.7pc during 2017 and returns to growers and processors would be helped by the dollar’s dip.
Meanwhile meteorological forecasts for a hot, dry start to the first quarter of this year for eastern Australia were important for farmers to factor in after a warm and wet 2016 said Rabobank.
Early-year weather forecasts were, however, neutral about the formation of either an El Nino (drought) or La Nina (wet) weather pattern.
After annual rainfall averaged 17pc above average across Australia in 2016, Murray Darling Basin water storages in January were in a far healthier position than a year ago at 80 per cent capacity compared with 41pc a year earlier.
The story Ag braces for 2017 Trump trade storm with optimism first appeared on Farm Online.