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Australia's prolonged La Nina weather event, coupled with a negative Indian Ocean Dipole (IOD), is expected to bring above-average rainfall for much of the country's winter crop. While this presents upside potential for the 2022-23 Australian winter crop, it also raises risks to global grain production, posing challenges to global food security. Inflationary pressures are mounting, leading central banks, including the Reserve Bank of Australia (RBA), to raise interest rates. The resulting strengthening of the USD, along with ongoing COVID-19 lockdowns in China, creates higher volatility risks for the AUD. This situation poses challenges to the beef industry, as higher input prices and uncertain exchange rates affect global agricultural profitability. Global economic risks, such as the war in Ukraine and energy shocks, are adding to the overall uncertainty. Central banks' increasingly hawkish stance in response to rising inflation may lead to policy mistakes if rates need to be pushed above "neutral" levels. The convergence of multiple shocks impacting the global economy simultaneously raises the risk of a recession in a major economy, which could further affect the agricultural industries. The NAB Rural Commodities Index experienced its first drop since March 2021, but is expected to reach another record high in May. The surging global grain prices, driven by various challenges like Russia's invasion of Ukraine, droughts in Germany, France, and parts of Africa, and supply chain disruptions, pose both opportunities and risks for grain producers. Australian wheat is competitively priced compared to international benchmarks, making Australia a key source of grain in the coming year. Global dairy trade prices have dropped significantly in recent auctions but remain high by historic standards. Despite moderate losses, farmgate prices are expected to remain elevated. As for beef, while cattle prices initially eased, they have been on an uptrend. With a wet winter forecast and strong global food inflation, the downside risks for cattle prices seem less likely, at least for 2022.

Declining Aussie dollar lifts export beef appeal

Inflation in Australia has reached its highest level in a decade, prompting the Reserve Bank of Australia (RBA) to raise cash rates with more increases expected. Australian farmgate dairy prices have also reached new highs, and there is optimism for further upside. Oilseed prices, such as rapeseed and canola, have hit record levels, driven by factors like export bans and supply concerns. CBOT corn and cotton have also reached all-time highs. Fertiliser prices, particularly potash, phosphate, and sulphur, have hit new highs, while urea and ammonia prices weakened. Record container congestion outside Chinese ports due to Covid-19 lockdowns has raised concerns about higher container freight costs. Looking ahead, questions arise regarding Australian grain prices following global market increases, the continuation of record dairy prices, the future trajectory of fertiliser prices, and the number of RBA interest rate hikes. On the global scale, food price inflation has surged, with the FAO Food Price Index reaching its highest level since 1990. The war in Ukraine continues to impact grain and oilseed markets, driving prices higher. However, weather conditions and supply projections for wheat remain uncertain. In the dairy sector, mixed global commodity prices have been observed, with weaker demand affecting some products. Palm oil exports from Indonesia have been banned, contributing to elevated vegetable oil prices. In the beef industry, a decline in prices is expected due to factors like increased cow liquidation in the US, but overall food inflation in Australia has risen. Consumers may face higher prices, and innovation will play a role in improving consumer value. Globally, households are grappling with higher food costs and cost-of-living pressures. Fertiliser markets continue to be volatile due to the war in Ukraine and sanctions on Belarus and Russia. Potash and phosphate prices have risen, while urea prices experienced a temporary decline. The flow of fertilisers from Russia and Belarus has been impacted by geopolitical factors. Gas supply disruptions from Russia could further affect fertiliser production and prices in Europe.

New Zealand's exports were heavily influenced by the global protein shortage and increasing demand from China and the United States. The report indicates that beef prices are likely to remain strong, driven by limited global supply and robust consumer demand. Furthermore, the ongoing challenges related to climate change and environmental sustainability continue to shape the sector, prompting efforts to improve resource efficiency and reduce emissions. New Zealand experienced a favourable season with increased milk production. However, the report emphasizes the need for careful management due to potential challenges such as rising input costs and the volatility of global dairy markets. Market conditions remained positive, with strong demand from Asia and emerging markets. Additionally, the report highlights the growing focus on sustainability and the role of the dairy industry in reducing greenhouse gas emissions. New Zealand's grain industry faced mixed conditions during the period. Wheat production was negatively affected by dry weather conditions, leading to lower yields. In contrast, barley and maize production showed more favourable results due to increased demand for feed and alternative grain-based products. The report also emphasizes the importance of diversification in the grain sector, including exploring opportunities in niche markets and value-added products to mitigate market volatility.

Seasonal conditions for agriculture are generally good to very good, with many regions receiving the necessary rainfall ahead of planting. This is particularly beneficial for beef and dairy production, as it eases concerns about winter crop establishment. However, some areas, such as Tasmania, southwest Victoria, and parts of Queensland, still face dry conditions. Commodity prices remain elevated, although there are indications that some, including dairy, cattle, and sheep, have slightly decreased from their record or near-record levels. The NAB Rural Commodities Index is expected to record a drop in April, the first decline in 13 months. Inflationary pressures are mounting across the economy, impacting agriculture. Fertilizer and fuel prices continue to pose significant challenges. Labour costs are also experiencing upward pressure. The overall economic inflation, with the CPI hitting 5.1% year-on-year, is expected to lead to an increase in the cash rate by the Reserve Bank of Australia. Regarding beef production, while some areas have received adequate rainfall, concerns remain about regions such as central Queensland and parts of Tasmania, southwest Victoria, and south-eastern South Australia. The cattle prices, although starting to decline, are still elevated compared to historical norms. However, the sustainability of these prices is questioned, especially if a return to a "normal" or even below-average season occurs. In the dairy sector, global dairy trade auctions have shown moderate losses since mid-March. Despite the price declines, farmgate prices are expected to remain high compared to historic standards. The report also highlights the challenges of rising input costs and the importance of global production and unevenly distributed stocks in driving the surge in grain prices.

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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.