Wet outlook weighs on inputs

With wet weather having defined the past 12 months for much of Australia, a recent shift of the Bureau of Meteorology’s ENSO Outlook to a La Niña alert will likely bring a mixed response.

La Niña events typically bring above average rainfall over northern and eastern Australia and, with the recent cooling of the Pacific Ocean and a sustained positive Southern Oscillation Index, the likelihood of its return has tripled.

This event is predicted over spring and will occur alongside a negative Indian Ocean Dipole event that is currently under way.

This negative IOD is forecast to remain until late spring and will contribute to further winter and spring rainfall for much of Australia, while the Southern Annular Mode will move into a positive phase and keep a drying influence across western Tasmania.

Water availability has remained strong over the past two seasons, with the current climate outlook suggesting this is very likely to continue.

Above average rainfall over most of mainland Australia will keep water storage levels close to or above last year.

Since the beginning of this new water season, seasonal determinations have risen substantially in response, with water users rapidly gaining full access to allocations.

While abundant rainfall has lowered the need to irrigate for many, significant volumes of water have been traded in both the northern Victorian and Murray Irrigation systems.

This can be mostly attributed to attractively low temporary water prices, encouraging opportunistic trading.

Wet outlooks typically come with subdued demand for supplementary feed.

Similarly to last year, ongoing rainfall, especially into the warmer months of spring, is likely to temper the demand for hay across many regions. This is due to strong pasture growth having the potential to both support stock and bolster home-grown feed supply.

However, with additional above average rainfall forecast for an already wet south-eastern Australia, there is also potential for wet weather events to damage crops and impact the harvest period.

This could play out in support of the expected short supply of hay heading into next year, or a repeat of last year, where yield-affected grain crops were cut for hay at the last minute, bringing a large volume of low-quality hay to market.

For now, buyers and sellers are collectively taking a bet each way, and although supply is reportedly low across most regions, hay prices remain steady.

Domestic grain prices remain elevated on account of restricted global supply and strong global demand.

Although another bumper grain harvest is expected across Australia, global demand is expected to again soak up a large volume, keeping local prices high.

This is due in part to the restriction of Ukrainian and Russian grain exports earlier this year and the impact of prolonged hot conditions on production across the Northern Hemisphere.

Back home, above average rainfall across late spring and into summer brings risks to crop maturation and the harvest period. It can significantly alter both the volume and quality of grain harvested and available on the market in the coming months.

While the effects of this climate outlook will vary across each region, this will add further unpredictability to domestic grain supply and prices.

Fertiliser prices have been steadily increasing over the past two years on account of high production costs and export restrictions.

Urea, diammonium phosphate (DAP) and potassium chloride (MOP) prices are respectively tracking 180 per cent, 157 per cent and 178 per cent higher than this time two years ago.

There is some positive news, however — the global indicative price of urea has fallen over the past month, and prices for both DAP and MOP have stabilised.

Amidst reports of farmers having to limit and prioritise fertiliser applications, those looking to lock in supply for the latter part of this season will be helped by the slower demand period across the Northern Hemisphere.

While prices appear to have stabilised in the short term, the sheer scale and diversity of supply issues at play, especially within major export markets, makes elevated fertiliser prices a strong bet into the medium term.

Even though this current outlook will likely bring challenges for the upcoming harvest period across both northern and south-eastern Australia, it also holds potential for gains in pasture growth and home-grown feed production.

This will help to reduce dairy farmers’ reliance on highly priced feed inputs and might cushion farmers against the unpredictability of grain and fertiliser markets at the whim of global influences.