Investment to flow into ag with positive sector performance
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Investment to flow into Australian agriculture in 2018, with positive sector performance forecast – Rabobank

 

 

Strong investment flows are expected into Australian agriculture in 2018, with a positive performance forecast for the sector in the year ahead, according to Rabobank’s just- released Agribusiness Outlook 2018.

In its flagship annual research report, the agribusiness banking specialist forecasts healthy appetite for investment in Australian agri in 2018, from both farmers and agribusinesses as well as outside investors.

The bank anticipates a positive year for Australian agriculture overall, with many commodities experiencing improved market conditions, and the sector as a whole “reaping the benefits of a positive global environment”.

The report’s lead author, RaboResearch general manager Tim Hunt says the “positive story” of Australian agriculture has generated considerable investment activity both from within and outside the sector in 2017 and this is set to continue in the year ahead.

“Farmers and agribusinesses’ own plans to invest in the sector are at robust levels across commodities,” he said. “While outside investment interest will also remain high as the structural story of Australian agriculture which includes population growth and  rising incomes offshore and consumers ‘trading up’ in their diets, as well as improved market access for Australian product is overlaid by positive cycles in the livestock and wine sectors in particular.”

Significant investment growth in AgTech will also continue at both corporate and start-up levels, he said.

Mr Hunt said the increased investment appetite across the agri sector was manifesting in a significant rise in the value of agricultural land.

“Agricultural land values have been rising in many areas, particularly since late 2017, underpinned by improving prices in a number of agricultural commodities and growing appetite for expansion in others,” he said.

Positive economic factors

The report says the strengthening global economy along with a number of other supportive economic and market factors is helping to underpin the positive outlook for Australian agriculture.

“The world economy is travelling well with a synchronised global upswing set to deliver another year of economic growth of around 3.7 per cent, which should flow through to rising consumer demand,” Mr Hunt said.

“In addition, while the Australian dollar has risen in the early part of this year, it is not too strong to compete in world markets and we expect it to soften as the year goes on. Interest rates are low, ensuring competitive financing costs.

“The agricultural input market is also generally supportive for farmers, with low fertiliser prices, good irrigation water availability at low prices in the Southern Murray-Darling Basin and feed available for the livestock sector.”

Mr Hunt said while freight rates were on the rise globally increasing the cost of shipping produce to market this was helping to restore some of Australia’s competitiveness in grains markets closer to home, in particular South East Asia.

And while climatic conditions remained a risk, the local weather outlook was currently benign, with no over-arching major climate force to “fear or celebrate”.

Other risks for the sector though, included geopolitical tensions and China’s debt situation.

Commodity outlooks

In terms of individual commodities, recent stellar performers wool and wine are tipped to remain strong into 2018, with prices also expected to remain supported in a number of other key sectors, the report says.

Wheat prices will continue to be weighed down in 2018, following another record year of global wheat production in 2017, and with forecast global 2017/18 ending stocks set to reach a new record of 273 million tonnes. Prospects for market strengthening have however emerged, with Rabobank forecasting a limited price appreciation in the global benchmark over the coming year.

Barley - forecasts for the lowest global ending stocks in more than 30 years and ongoing strength in Australian livestock markets are set to keep barley prices elevated.

Dairy – the road to recovery resumes, the Rabobank report says, with trading conditions for dairy farmers to be broadly attractive, and processor ownership issues resolving.

Growth in the global exportable dairy surpluses will however continue to expand in the first quarter of the year, putting ongoing pressure on global prices. However, the bank isn’t expecting these surpluses to overwhelm the global market. China’s import appetite for dairy is also forecast to remain buoyant during the year.

Beef growing global beef (as well as poultry and pork) production, together with increased cattle inventory in Australia, will exert downward pressure on Australian cattle prices through 2018, the report says. Exports are predicted to remain strong, albeit with the US providing tough competition in key markets, including Japan and Korea, and with a growing presence in China.

Sheepmeat strong export markets and limited growth in global production are predicted to continue to drive good prices for the lamb industry in 2018.

Sugar Rabobank expects the global sugar market to return to surplus in the 2017/18 season, with plentiful supply underpinning a subdued market outlook.

Cotton the commodity is off to a strong start in 2018, supported by long positions taken by speculators and a large number of on-call sales (cotton already purchased but where price has not yet been fixed by mills). Market fundamentals are, however, likely to become more influential in the second half of the year, presenting downside risks to the current high prices.

Wool tight market conditions are predicted to continue through the first half of 2018, helping to support high prices. The Australian wool supply is forecast to increase only marginally through the 2017/18 season, however declining exports of Chinese wool products and declining US imports of wool products present some risk to maintaining the current global demand for this commodity.

Wine the Australian wine industry is riding a wave of positive forces including strong local production levels in a tight global market. It is likely to enjoy its best year in a long time in 2018, the report says.

Horticulture doors continue to open for Australian horticulture offshore, with the sector making hard-won gains in export markets. This is enabling the industry to capitalise on growing global demand for high-quality fresh produce.

 

Rabobank Australia & New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of approximately 8.6 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.

Media contacts:

Denise Shaw
Head of Media Relations
Rabobank Australia & New Zealand 
Phone: 02 8115 2744 or 0439 603 525 
Email: denise.shaw@rabobank.com  


Skye Ward
Media Relations Manager
Rabobank Australia
Phone: 02 4855 1111 or 0418 216 103
Email: skye.ward@rabobank.com