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Australian agricultural commodity prices have experienced a downward trend, with the NAB Rural Commodities Index falling 6.6% in December and an additional 5.8% in January. Beef and grain prices have been major contributors to this decline, with wheat dropping significantly in late 2022 and cattle prices continuing to fall. Looking ahead, grain prices are expected to remain moderately lower, and the livestock sector, particularly cattle, faces challenges such as higher turnoff, processor constraints, and difficult global conditions. In the dairy sector, global dairy trade auction results have been negative, posing challenges for Australian processors due to high farmgate prices. However, returns at the pre-farmgate level remain strong for now. Cotton prices have stabilized in the new year, while sugar prices have shown moderate gains. The oil market outlook and supply concerns are expected to drive prices in the coming months, with prices likely to remain elevated. The global economic outlook remains uncertain, although recent data have surprised on the upside. Inflationary pressures persist, leading to a more hawkish stance by the Reserve Bank of Australia (RBA). NAB predicts 25 basis point rate hikes at each of the next three RBA meetings, with rates peaking at 4.1% in May. Despite some positive economic indicators, the Australian economy is expected to grow below trend in 2023 and 2024, leading to slower consumption growth and weaker outlook for investment in housing and businesses. The unemployment rate is also projected to drift higher in the second half of 2023. Weather conditions in Australia have been mixed, with above-average rainfall in northern regions but a drier start in southeast Queensland, southwest Western Australia, Victoria, and Tasmania. The possibility of an El Nino developing this winter adds to the uncertainty, although the Bureau of Meteorology's latest outlook suggests a dry autumn for southern Australia. Farm input prices have been volatile due to various factors, including COVID-19, trade disruptions, the Ukraine war, and inflationary pressures. Fertilizer prices have been declining, while feed grain prices have retreated but remain above year-ago levels. Cattle prices are undergoing a sharp correction, dairy trade auction results are reversing, and wheat prices are expected to gradually ease with a higher Australian dollar forecast.

Australian agriculture had a remarkable year in 2022, with high commodity prices and strong production volumes. Beef, dairy, and grain sectors all experienced excellent to record prices, benefiting from favourable seasonal conditions and global market tightness. Despite challenges such as price volatility, supply chain issues, and elevated costs, Australian farmers achieved record-high farm income. However, it is unlikely that 2023 will replicate the exceptional performance of 2022, with lower prices expected due to a global recession and inflationary pressures. In the beef sector, production volumes are slowly recovering, and while cattle prices will be softer in 2023 compared to 2022, they will remain historically high. Import demand from China and the contraction of US beef production will play a crucial role in determining market dynamics. The dairy sector also anticipates positive margins in the 2023/24 season, with ample feed availability and favourable seasonal conditions. However, ongoing recovery from flooding remains a challenge. The grain market is facing a shift in supply and demand dynamics, with historically low global stocks and increased political involvement in the trade. While the west coast of Australia expects increased demand for canola, the rest of the year appears less exciting. Grain prices are projected to ease, with a divergence between wheat and corn markets. Reduced supplies from the Black Sea region, lower Australian crop yields, and dry conditions in Russia may contribute to rising wheat prices. In contrast, corn prices are expected to decline due to large supplies from Brazil and the US. Australian agriculture is well-positioned to navigate 2023, but with lower margins compared to the exceptional year of 2022. Climate extremes, inflation, geopolitics, and supply chain disruptions are among the challenges that farmers need to address. Adapting to changing consumer behaviour and improving sustainability practices are also key priorities for the industry. While uncertainties remain, the sector remains resilient and ready to seize opportunities in the coming years.

AOF forecasts record Australian canola crop at 7.6Mt

Australian cattle markets have experienced a recent decline in prices due to an abundance of young cattle supply and challenging conditions in the US market. Although prices have reversed in the past week, there are potential risks for further volatility in 2023. Despite this, overall beef prices remain above pre-2020 levels, indicating a profitable period for many producers. Global dairy trade auctions have shown a downward trend, posing challenges for Australian processors who are dealing with falling milkflow and high farmgate prices. While farmgate prices currently remain high, there are emerging downside risks for the 2023-24 season. However, it should be noted that the current disconnect between falling global prices and high farmgate prices is not expected to continue indefinitely. Australian wheat prices have significantly declined since mid-November, primarily due to easing concerns about Black Sea supply, a stronger Australian dollar, and a large domestic harvest. However, volatility is expected to persist due to tight global stocks and geopolitical concerns. Despite this, Australian domestic feedgrain prices remain higher than the previous year, and there is an ample supply of feed-grade grain in the Australian market for 2023. ABARES forecasts record-breaking wheat production, surpassing last year's record, along with substantial production numbers for barley and canola.

The Australian agricultural commodity prices have shown a slight increase in the past two months, driven by higher wheat and cattle prices. Despite the weaker global economic outlook, agriculture continues to experience elevated prices as buyers consider seasonal and geopolitical uncertainties. Seasonal conditions have been generally supportive, with a promising winter crop expected. However, recent floods have damaged crops in parts of eastern Australia, posing risks to crop quality. While prices and yields remain strong, input costs and market volatility remain challenging factors. Global monetary policy normalization is progressing rapidly, with the US Federal Reserve and the Reserve Bank of Australia (RBA) raising interest rates. This weakens the global economic outlook for 2023, with the expectation of further rate hikes. The Australian dollar (AUD) has fluctuated amid global economic uncertainty. Wheat prices have rallied due to global supply uncertainty and the breakdown of the Russia-Ukraine wheat deal, suggesting high prices may persist. Cattle prices have rebounded, but restocker demand and feed grain costs pose uncertainties. Global dairy trade auctions have shown lower results recently, and while farmgate prices remain high, downside price risks are emerging. Cotton prices have retreated from previous highs, but with favourable growing conditions, growers remain optimistic. Persistent global inflation pressures raise the likelihood of further rate increases, leading to a projected significant global economic slowdown in 2023. While the Australian economy has remained resilient, early signs of slowing are evident, particularly in labour demand indicators and consumption measures. The central banks are expected to continue raising rates in response to high inflation. The AUD/USD exchange rate has fluctuated, with forecasts of the AUD ending the year at around 65 US cents. Australia has experienced a wet year, particularly in south-eastern regions, which has generally supported crop production. The La Nina weather pattern is expected to continue for the next few months, bringing above-average rainfall to the eastern states. However, Western Australia is forecasted to have drier conditions than usual. Farm input prices have been increasing since 2020 due to various factors, and while there are signs of stabilization, they remain elevated. Oil prices have been volatile, impacted by global events, but forecasts suggest slightly lower prices in 2023.

Australia exports 5.4Mt canola in year to Sep 30

The recent La Niña weather pattern combined with above-average rainfall is expected to continue affecting beef production in Australia. The excessive rain has caused flooding in some regions, hindering the ability to easily quantify damage to cattle and pastures. Despite favourable seasonal conditions supporting producer demand, cattle prices have remained steady, and slaughter numbers have been low due to good pasture availability and low margins. Export volumes have also been affected, with a decrease in September after an unusual lift in August. Additionally, the Australian government's commitment to reducing livestock emissions without introducing taxes or levies may have implications for the beef industry. The dairy industry in Australia has been impacted by the La Niña weather pattern and excess rainfall. Floods and wet conditions have led to feed losses and reduced milk production in various regions, particularly in northern Victoria. Milk production has trailed behind the previous year, and consumer demand for dairy products has weakened. Cheese production has expanded, but skim milk powder production has decreased. Dairy commodity markets have experienced price declines, influenced by sluggish imports from Chinese buyers and weakening consumer confidence in China's food market. The Australian grain market is facing volatility drivers from both domestic and international factors. Unseasonal rain and flooding caused by La Niña have negatively affected crop quality and reduced tonnage. The Ukrainian grain corridor deal with Russia has been disrupted, potentially impacting global grain prices. Wheat prices reached a four-month high before retracting due to uncertainties surrounding the deal's renewal. The future of grain prices depends on how much wheat is downgraded into feed and whether the Ukrainian grain deal is permanently eliminated. Additionally, the recent flooding and weather events in agricultural regions have led to higher food price inflation, affecting the overall food supply volumes in Australia.