AS the good times for agriculture roll on with super strong commodity prices joining forces nicely with excellent seasonal conditions, big levels of farming dollars are being poured into investments which will set operations up to capitalise longer term.
Drought resilience, infrastructure, sustainability and market diversity are where producers are investing most, consultants and banks report.
It all points to a strength in Australia’s agriculture sector that will drive prosperity over the next decade and which is currently fostering a remarkable optimism.
With a record grain harvest now clearly in the frame, the young cattle indicator defying forecasts to keep climbing into phenomenal territory, substantial hikes in prices for a range of commodities from sugar to cotton and a wetter-than-average spring in the east now looking very likely, rural confidence is at all-time highs.
The situation has propelled National Australia Bank’s Rural Commodities Index to its highest level ever, after it jumped 2 per cent month-on-month in July. The index is now 12.6pc above the same time in 2020.
NAB’s August Rural Commodities Wrap says for grain growers, the season looks as good as last year’s, which delivered a record 33 million metric tonnes of Australian wheat.
Grain prices have jumped again this month, reflecting an ongoing rally in global markets and NAB now puts Australian wheat prices around the $350 a tonne mark in the December quarter, having previously expected prices in the low $300s.
Canola also continues to make headlines, supported by a big rally in global oil seeds, reflecting labour shortages in palm oil plantations in COVID-hit countries and extreme heat in Canada.
While many analysts, including those at NAB, believe the Eastern Young Cattle Indicator is overheated, they do make note that a wet spring outlook only points to upside for the cattle market.
Of course, the great unknown right now is the economic implications of extended lockdowns through much of the country.
NAB had penciled in a quarter three gross domestic product contraction of around 3pc but does say with key vaccination targets likely to be achieved by year’s end, activity is expected to rebound strongly in 2022.
Others point to the resilience the agricultural sector has shown during pandemic lockdowns so far, and the hikes in demand they typically foster.
NAB’s commodities wrap points to the lower Australian dollar as another good news item for agricultural commodities, albeit a challenge for farm input costs.
“Fertiliser prices have more than doubled in a year and rose 7.1pc last month alone,” NAB agribusiness economist Phin Ziebell said.
“We continue to see higher global diammonium phosphate and urea prices, which combined with a lower AUD, keep pushing our fertiliser index north.
“While oil prices have fallen a little in the past month, shipping costs remain very elevated, and there is unlikely to be respite any time soon.”
Global dairy trade auction results have been generally weaker since April, but the lower dollar has muted this impact domestically, according to NAB.
Consultants are reporting that property size building as a means of expanding is now losing favour.
Farm business advisor Sandy McEachern, Aggregate Consulting in Wagga Wagga, said the thinking was when rural property prices do stop rising, they will come to a halt for a long period.
The fear of negligible capital gains for the next decade was encouraging producers to look at options other than buying more land for expansion opportunities, he said.
Improving soil health, infrastructure to better utilise what is grown, genetics and animal health were more likely to receive investment attention at the moment, he said.
Agribusiness specialist Lisa Lonsdale, Rockhampton, said strong levels of capital work was being done on-farm in Queensland.
“Timber control, grass improvements, water infrastructure – there is a definite sentiment of building resilience in preparation for the next drought,” she said.
“We haven’t seen the positivity that is about now for a long time. Prices at the levels they are, and interest rates so low, is driving long-term investment on-farm which is going to build in a lot of strength for our farming enterprises going forward.”
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