Q4 2020 Milltrust Australia Agriculture Commentary

April 30, 2021

BY Milltrust International Group

The last quarter of 2020 was just as eventful as the first three quarters for Australian agriculture, due to a La Nina event driving wetter than average conditions in most regions and spurring a significant surge in production; ongoing Covid-19 disruption; and escalating trade tensions between Australia and China.

A persistent La Nina event has continued to produce wetter than average conditions in most regions. Favourable weather has seen water storage sites replenished and produced productive growing conditions across most commodity classes.

Trade relations between Australia and China have been in the spotlight for much of 2020. From lobster to wine and barley to beef, there is an emerging pattern of scrutiny and disruption to exporters which has the potential to impact other industries. As a result, Australian export industries have been looking to deepen ties with alternative markets, decreasing the reliance on China, in the Indo-Pacific region. To this end Australia is a signatory to the Regional Comprehensive Economic Partnership (RCEP), which includes 15 countries. China is included in RCEP, as is Japan, Australia’s second largest trading partner. RCEP will likely provide non-tariff advances in trade relationships between the listed countries.

Whilst the Covid-19 pandemic appears far from over and disruptions remain (predominately in the form of labour shortages) there are promising signs for Australia as restrictions ease and domestic demand returns. Food security concerns driven by Covid-19 will likely continue to cause commodity price increases, which will further the fortunes of Australian agriculture.

Favourable seasonal conditions in 2020 led to an increase in supply for many commodities. Increased rainfall over the summer poses a quality concern for southern grain growers while the wetter conditions decrease the reliance on supplementary feed for the livestock industry.

Australian agriculture continued to perform well across the board, with none of the major agricultural regions experiencing significant value drops due to Covid-19 disruptions (in fact most regions gained in value). The property market is currently very strong with reduced property listings (for sale), increased demand for quality assets across all commodity types and a corresponding increase in the value of assets being transacted.