Tough year ahead for Irrigators report says
- By: "Farm Tender" News
- Dairy News
- Sep 16, 2018
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The rural market has had a strong 2018 period, built off the tail winds of continued downward pressure on the softening Australian dollar from the January high combined with a dominant agricultural industry within Australia that has strengthened further in the 2017/18 period. However, the severity of Australia’s drought has now received national and international attention being brought to the forefront of the news. Victoria is now in potentially one of the worst droughts ever recorded, with the region currently experiencing a one in 20-year rainfall shortage with crop harvesting potentially at 10% to 15% of its usual yearly harvest.
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The worsening drought conditions forecast are expected to make a considerable impact on GDP growth, with Citigroup forecasting that if current conditions continue and the expected drop of 20% in farm production does occur, GDP growth could drop half a percentage point, which is equivalent to approximately $5 billion in export production. The Reserve Bank of Australia caution that rural exports could be affected for the foreseeable future even though they have had a short term rise due to many farmers forcing cattle prematurely to slaughter due to inability financially to keep them. The weather later in 2018 is still forecast to continue dry conditions. Farm sector GDP dropped 15% in the
March quarter and that trend is likely to continue.
The drought hasn’t totally eviscerated the rural market, with a relatively high demand for large scale farming from international investors continuing, whilst Chinese interest has seemingly diminished to a certain extent. The March 2018 quarter saw a reduction in rural sales, down 4.6% over the previous period, however the volume of sales increased to reach $67.8 billion, which was a 0.7% increase on the previous period, showing that the sector has still seen some growth even in a subdued market.
However with all that is going on there still seems to be an appetite for investment and the outlook for the rest of 2018 looks positive, with land values increasing in line with agribusiness which is expected to continue into the future. Even though the drought is topical and in the immediate term, it is expected that long term impacts that could shape the rural market are starting to play out. Increased feed costs for livestock are expected to continue to rise and combined with the ongoing climate change debate in full swing at the moment with uncharacteristically warm months recorded, this could play a significant role in future land values within the rural market in the longer term.
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