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After years of talking about it, carbon farming “is here”

Milk supply in export regions, particularly New Zealand, has been declining, contributing to a global supply crunch. Rising costs of production and weather-related disruptions further exacerbate the situation. Despite strengthening global dairy commodity prices, the supply shortage may continue to impact export returns and result in higher food prices for consumers. However, the timely and record-high milk price offers from Australian companies provide some support for local dairy farmers. The beef sector is experiencing limited cattle availability due to dry conditions in northern Queensland and the Northern Territory. Below-average rainfall has led to increased cattle sales, particularly of younger and lighter cattle, and may result in a drop in young cattle prices. Abattoirs are facing challenges in managing available workforces, leading to longer wait times for processing. While beef export volumes remain low, there has been a slight increase compared to earlier months, but still below the five-year average. With ongoing supply constraints, the availability of live export cattle is expected to be more limited in the future. The war in Ukraine and ongoing geopolitical risks have driven grain and oilseed prices higher. The disruption in Russian and Ukrainian exports has led to global supply concerns. Sanctions and trade bans are expected to have enduring structural impacts on Russia's and Ukraine's grain production. Local wheat prices are expected to see limited upside due to congested export supply chains, while barley prices are likely to maintain recent gains due to a lack of global availability. Additionally, high fertiliser prices caused by the war in Ukraine are impacting the supply and energy front, posing further challenges for farmers.

First quarter beef exports crash to record lows

Australian grain producers are facing challenges due to the impact of the Ukraine conflict, which has resulted in high grain prices, increased costs, and tight availability of inputs. The conflict has disrupted global grain trade flows and supply chains, with potential long-term effects on Ukrainian grain exports. The conflict's impact on grain prices may have indirect consequences for the beef industry, as high feed grain prices could affect the profitability of feedlots and other major feed users. This could lead to reduced profitability, decreased cattle numbers, or increased costs for beef consumers. Global dairy prices have experienced a slight decline in recent auctions after a strong start to 2022. This decrease is attributed to new COVID outbreaks in China and the country's zero-COVID strategy, resulting in a temporary drop in demand. However, globally, there is still strong demand and limited supply due to reduced production in New Zealand, the United States, and the European Union. Australian domestic production is also expected to be down this year due to seasonal conditions. Despite rising input prices, domestic dairy prices are expected to remain favourable, especially considering recent step-ups. Autumn is the planting window for Australian grains, but the next crop is not forecasted to match the record levels of the past two years. Domestic acreage for grains may see a slight decrease, particularly for wheat, although there should be increases in canola and pulses planting. Global grain and oilseed prices are expected to remain high due to uncertainty surrounding the impact of the Ukraine conflict on the region's grain production and exports. Australian grain producers may experience the impact of high prices, as well as the high cost and limited availability of fertilisers and other inputs. The conflict's effect on global grain trade flows and supply chains could have short and long-term consequences.

Russia's invasion of Ukraine has had a significant impact on agricultural commodity markets worldwide. The invasion has disrupted old commodity trading routes and caused substantial increases in prices and volatility, particularly in the beef, dairy, and grain sectors. The uncertainty surrounding Ukraine's agricultural production has contributed to these market fluctuations. While western sanctions do not extend to Russian agricultural products, the global agricultural community is bracing for potential disruptions. In terms of beef, the rising input prices, such as fertilizers and diesel, have become a mounting concern for 2022. The ongoing La Nina event has brought destructive storms to certain regions in Australia, affecting beef-producing areas like Queensland and New South Wales. The fluctuating weather conditions have created a divide between wetter and drier regions, with some southern regions in need of more rain for the upcoming winter cropping season. Despite the challenges, high beef prices have offset some of the pressures faced by producers. The grain market has experienced significant impacts due to the Russian-Ukrainian conflict. With Russia and Ukraine being major global exporters of wheat, the disruption has caused high volatility and substantial rallies in global wheat prices. Although Australian grains remain under-priced compared to global benchmarks due to ample domestic supply and shipping limitations, the market is highly uncertain. Factors such as the extent of Ukraine's crop at risk, overseas growing conditions, and the US drought situation contribute to potential upside risks in the coming months. In the dairy sector, global dairy trade auctions have achieved record-breaking results, leading to high farmgate prices. The Russian invasion of Ukraine further adds to the volatility in grain markets, which indirectly affects the dairy industry. The situation poses both challenges and opportunities for dairy producers, as the ongoing market dynamics and global results could continue to impact farmgate prices. However, the high prices experienced in recent years may have peaked, and the industry could see a slight decline in prices. The agricultural commodity markets, particularly beef, dairy, and grains, are facing significant disruptions and uncertainties due to Russia's invasion of Ukraine. The conflict has re-established old commodity trading routes and caused price increases, volatility, and concerns over production. Producers are closely monitoring input prices, weather conditions, and global market trends to navigate these challenging times.

The ongoing conflict in Ukraine and Russia is expected to have minimal direct impact on global beef trade. Russia's role in global beef imports has significantly declined in recent years, accounting for only 2% in 2020. However, there may be indirect impacts such as higher costs for feed and energy. Cattle prices in Australia have been relatively stable, but there is a shortage of finished cattle. Slaughter numbers in 2021 were the lowest in 37 years, indicating a rebuilding of the herd. Beef exports from Australia have decreased, with volumes in January 2022 being the lowest since 2011. The milk supply situation in key export regions, such as the US and New Zealand, has been deteriorating. Poor weather in New Zealand and feed pressures in the US have led to a decline in milk production. As a result, Oceania commodity prices, including butter and cheese, have reached record levels. This firm commodity basket is expected to support milk pricing in Australia, and further upside in pricing is anticipated. Higher feed and fertiliser prices, along with increased energy costs, may limit milk supply growth and impact discretionary dairy purchases in emerging markets. Ukraine is a major export powerhouse for grains, oilseeds, fertilisers, and energy. The ongoing conflict and export disruptions in Ukraine have led to a halt in exports, which increases demand for grains from other regions, including Australia. Price volatility is expected to remain high, and the impact on 2022 crop production in Ukraine is unknown. The conflict has also led to heavy sanctions on Russia, which could disrupt Russian exports of grains, energy, and fertilisers. While a direct ban on Russian grain and oilseed exports is unlikely, indirect disruptions are occurring. The length of the war and the extent of the disruptions will be crucial to monitor.

China relaxes customs access for Aussie imported beef: Is it a sign of a thaw in relations?

The La Nina weather event, which has been ongoing since November, has brought monsoonal conditions to Victoria, South Australia, and New South Wales, while central Queensland has experienced drier-than-average conditions. Despite the mixed weather patterns, livestock prices remain strong, supported by the overall wetter-than-average seasonal conditions. The Australian beef industry has benefited from these factors, with hot livestock prices remaining stable. The global dairy trade has been positive in all three auctions held so far this year, with export prices reaching their highest levels in the last decade. Australian dairy producers are experiencing the benefits of these strong export prices, providing good news for the industry. The summer harvest in the eastern states has been generally excellent, and despite challenges during the La Nina event, soil moisture levels are expected to remain high, supporting a good start to the 2022-23 season. Grain prices have been generally strong, although they have pulled back slightly in the new year. Wheat futures on the ASX have remained elevated, reflecting high global fertiliser prices, geopolitical uncertainty in Ukraine, and patchy global growing conditions. Canola prices have decreased significantly from their earlier peak, and barley prices remain low due to the China trade ban and abundant domestic supply. Cotton prices have rallied, reaching the highest levels in 11 years, supported by excellent seasonal conditions. The sugar market has peaked but has only experienced moderate declines since November.

The Australian beef industry is expected to see a lift in production and exports in 2022, driven by increased cattle numbers. Slaughter numbers are forecasted to increase by 13% compared to the previous year, indicating improved breeding and calving numbers. Despite the increase in supply, cattle prices are expected to remain strong due to strong consumer demand and limited supplies. The US meat market experienced high demand in 2021, resulting in high import and export prices. While demand in the US is expected to remain strong, any downward movement may create margin pressure for Australia and lead to downward pressure on prices. The Australian dairy industry is in a strong position, with widespread profitability and expected record-breaking EBIT margins for the third consecutive season. Farmgate milk prices in the southern export region may see upside as global market fundamentals remain price supportive. However, rising production costs may partially offset the potential increase in farmgate milk prices. Milk production underperformed in the previous season due to labour shortages and above-average rainfall. Labour challenges are expected to continue in the upcoming season, but most dairy farms have sufficient feed reserves to mitigate climate risks. Grain production in Australia had a strong year in 2021, with record harvests in both the west and east coasts. However, heavy rainfall during the harvest window in November and December caused flooding and impacted crop quality and quantity. Global grain prices are expected to remain high due to low stocks, La Niña risks, demand from China's feed sector, and elevated input costs. Prices for wheat, corn, and barley are forecasted to remain above average. While some improvements in global supply are expected, factors like export quotas, taxes, and geopolitical tensions may limit shipments and impact prices.

The Bureau of Meteorology (BOM) has increased the likelihood of La Niña conditions re-emerging, which will bring above-average rainfall to northern and eastern Australia during summer. This increased rainfall is beneficial for southern regions, supporting grain fill and pasture growth. However, it hampers harvesting in northern productive regions, affecting the winter crop. Beef prices have been rising, but there are concerns about price pressure as global prices stabilize and the Australian dollar strengthens. Dairy commodity prices are being supported by supply pressures, with slow milk production in New Zealand and Australia. New Zealand experienced a slow start to its season, and Australian milk production is down. Despite challenges in supply chains and rising costs, there is ongoing demand for dairy products in Southeast Asia, particularly from China. The Chinese foodservice sector is still recovering from the impact of the Delta variant, affecting consumer spending and travel. Rabobank forecasts a 5% decrease in Australian winter crop production compared to the previous season, but it remains 25% above the five-year average. Global wheat and corn prices have been rising, driven by positive demand signals and reduced stocks. Fertilizer supply concerns, particularly in China, pose challenges for phosphate and nitrogen availability. High global grain prices are expected to continue, while urea prices may fall depending on factors such as gas supply and commodity prices.