This article is from the Australian Property Journal archive
A MORE favourable rainfall outlook for the first half of 2025 spells good news for farmers around the country, as does a thawing trade relationship with China, however, Russia’s ongoing invasion of Ukraine and the unknowns of a second Trump presidency may bring difficulties.
According to Rural Bank’s Australian Agricultural Outlook 2025, an improving Australian economy will also provide support for farmers.
“A lift in household spending as tax cuts, moderating inflation and interest rate cuts drive increased disposable income will see improving domestic demand with global markets expected to see rising consumer spending on the back of similar,” it said.
“An initially lower Australian dollar will also maintain export competitiveness across key agricultural sectors providing a further boost for the economy.”
The new year is set to bring a mixed bag of macro factors.
“Farmers are expected to see a more positive first half of 2025 amidst a generally favourable rainfall outlook and improving demand prospects, though a key concern is the geopolitical environment which is becoming increasingly unpredictable,” the report said.
Australia’s agricultural industry navigated a more stable operating environment in the second half of 2024, with commodity prices broadly steady on the back of reduced global volatility, with average to slightly elevated national production assisted price stability.
Fortunes at a state level were mixed. Varied seasonal conditions resulted in contrasting prospects for Australian farmers, with producers located in South Australia, Tasmania and western Victoria in particular dealing with significant rainfall deficits and bouts of frost, and in some cases hail. Meanwhile, timely rainfall was seen across Queensland, NSW and Western Australia.
Production and quality estimates for the first half of 2025 have benefited from generally improving seasonal conditions, although heavy rainfall events seen in states in recent weeks have impacted quality estimates for cropping and horticultural producers.
The Bureau of Meteorology (BOM) is currently tipping above-average rainfall for large parts of eastern Australia and regions of the west in the early running of 2025 following high-than-usual rainfall in December. This will prove especially beneficial for pasture growth. For South Australia, southern Western Australia and the Northern Territory, rainfall is likely to sit within the typical ranges.
A La Niña watch remains in place, while the El Niño–Southern Oscillation (ENSO) has been forecast by the BOM to remain neutral this summer. Most of Australia has triple the chance of being “unusually warm” over the summer period.
For irrigation, inflows into water storages have been relatively low and water use has been comparatively high. Northern storages have seen available volumes fall which has had a small impact on water allocations. Southern Basin storages remain relatively healthy which will prove favourable for irrigated crop production in the region.
Supply and demand dynamics of global markets remain key to the sector given around two thirds of Australian agricultural products are exported.
Freight rates will ease slightly in 2025, providing a small boost to exporters amidst a rise in new vessel capacity and lower fuel costs. Global shipping and freight rates are expected to remain elevated however. Disputes in the Red Sea and the conflict between Ukraine and Russia continue to push shipping through alternative, more expensive routes.
From a market perspective, the “refreshed” trade relationship with China will continue to benefit a range of agricultural sectors, according to Rural Bank, following the last of the punitive tariffs on Australian goods being removed in October.
“While economic challenges within China continue driving questions surrounding demand for more premium produce, the strong rebound seen in Chinese imports of Australian wine provides some confidence that demand for Australian produce within China remains resilient,” Rural Bank said.
The report said that following the implementation of several high-profile free trade agreements in recent years, “the likelihood of volatility across global markets has increased following the election of Donald Trump as US President – which is set to unsettle markets.”
The Australian red meat and wine sectors are the most exposed to the US market at present.
The President-elect initially campaigned on a platform of placing a 10% to 20% tariff on all imports while products from China would receive a tariff of 60% or more.
“There remains no timeline set for implementation, with tariffs more likely to come into effect in the second half of 2025 which will likely stave off volatility until later in the year. Australia gaining an exemption to these tariffs will be a key focus in diplomatic and trade circles in coming months.”
Rural Bank described global economic growth prospects as “varied, albeit broadly positive”.
“Improving economic data out of China, amidst the prospect of ongoing fiscal stimulus, is expected to provide support to our largest agricultural export market. Meanwhile, declining inflation and ongoing rate cuts by central banks are also expected to support international demand.”
