Tough year ahead but farmers will remain on the job

Tough year ahead but farmers will remain on the job

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Rabobank's Outlook points to a 'multi-year rebuild' for most.

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REDUCED production and a third consecutive year of contracting farmgate revenues will make 2020 one of the most challenging for the majority of Australian farmers, the flagship early-year report from big agriculture lender Rabobank shows.

Agribusiness Outlook 2020 concludes a 'multi-year rebuild' is how business is now shaping up for most agriculture sectors.

For horticulture specifically, it says the demand for fresh produce will remain strong, but "local and global headwinds bring some risks".

However, report lead author and Rabobank head of food and agribusiness research, Tim Hunt, says returns have not tightened to the point where big numbers of producers in any commodity are looking to exit.

Important context, he said, was that leading up to the onset of the current drought, Australian agriculture had largely experienced seven good years with favourable seasons and strong pricing.

LOOKING AHEAD: Rabobank head of food and agribusiness research Tim Hunt.

LOOKING AHEAD: Rabobank head of food and agribusiness research Tim Hunt.

"Most farmers entered this current run of drought years with a strong equity buffer," Mr Hunt said.

After consecutive hard seasons those are being eroded and the past season was loss-making for many, he said.

Rural debt has risen, mainly to cover operational expenses, Outlook 2020 says, and rural confidence is lower now than it was this time last year.

Still, the vast majority of producers have a viable business, Mr Hunt said.

And recent rainfall has brought optimism, although much more is required to replenish soil moisture and break the drought.

FUTURE: A graphic released by Rabobank for its 2020 outlook.

FUTURE: A graphic released by Rabobank for its 2020 outlook.

"Low soil moisture and feed shortages are widespread, while key water storages in the southern Murray Darling Basin are at their lowest levels in a decade and bushfires have also caused localised damage and disruption," Mr Hunt said.

When the drought breaks in various regions and production rises, and incomes with it, many producers would look to pay down debt and retain earnings before investing in the likes of machinery or more property, he said.

That financial constraint on recovery would make production growth all the more elusive.

Pivotal year

BECOMING more resilient to changing seasonal conditions was on the radar of many of Rabobank's agribusiness clients, Mr Hunt said.

Outlook 2020 goes as far as to describe this year as a pivotal one in terms of the world's transition to tackling climate change.

"As farmers look to rebuild, this will be very much part of the planning," Mr Hunt said.

"Equally. they'll be looking for market opportunities arising from consumers' increased awareness of climate change and interest in more sustainable products."

And while production will remain weak, the fundamentals are in place for the strong demand and high prices for most commodities to remain.

Other watch factors highlighted in Outlook 2020 include:

  • the Chinese ruling on its anti-dumping investigation into Australian barley due by June
  • the impact of the Phase 1 deal between the US and China on Australian agricultural exports, particularly almonds and cotton
  • the global economic impacts of the US presidential election and Brexit,
  • the potential for improved trade deals with the UK and the EU.

SEE ALSO: Insatiable Chinese demand creates turning point for beef

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