Reducing inflation in Australia and many other countries around the world seems more difficult than many central banks had hoped.

RaboResearch general manager Australia and New Zealand Stefan Vogel said interest rates have increased at the quickest speed ever in many major countries, “and the market is reading statements from the RBA and other central banks as signals that we are still likely several rate hikes away from the peak”.

Mr Vogel said every new rate increase further tightens the amount of ‘spendable income’ in people’s pockets, as well as increasing costs for business, which heightens the risk of job losses. “Therefore, no surprise that global economic headwinds, or even a recession, loom in 2023,” he said.

“Agriculture is usually a good industry to be in during a recession. Still, it is far from recession proof and also feels the impact.”

A look at the global financial crisis (GFC) in 2007/08 shows an interesting pattern among consumers in many countries, Mr Vogel said, which is likely to be repeated again this year. “Consumers ‘trade down’, which means they try to reduce their spending on food while still getting good value. This is done in different ways – by consuming cheaper products (such as less-expensive cuts of meat) cheaper alternatives (like chicken rather than beef) or by eating at home rather than at restaurants.”

Mr Vogel said “Given this pattern, there are winners and losers amongst our agri products, and meat and dairy products usually feel more pain.

“The good news is that grains and vegetable oils don’t see big consumption changes during a recession, while cheaper proteins like pulses and eggs may even be more favoured by consumers.”

As such, Mr Vogel said the trade and consumption volumes globally of grains and oilseeds are rather recession proof and don’t show reductions in years of recessions.

“That said, prices of grains and other agri products are not recession proof and market can face price pressure to ensure the volumes find their way on to the global consumer’s plate.

“Another piece of good news for the grains sector, however, is that the correlation between global wheat prices and global fertiliser prices is rather strong. And, so far this year, this trend has not disappointed, with global fertiliser prices down more than 40 per cent from their record peaks last year.”

According to Mr Vogel the outlook for Australian grains in 2023 is good, although very unlikely to replicate the previous year’s record prices and volumes. He said grain farming margins, while down from last year’s exceptionally strong level, are expected to be positive in 2023.

“Our grain farmers have less to fear from the impact of a global recession on prices than from price downside coming from high local stocks and from potential positive surprises in global 2023 production volumes in key countries,” he said.

Mr Vogel said “Significant price upside might only come from further geopolitical shocks, and high on our watch list is the renewal of the Ukrainian grain export deal which is due in March. Russia is once again putting some hurdles in the way of this renewal, although that’s similar to what it did last November when Russia ultimately still signed the renewal. And it seems likely it will be once again signed in March” he said.

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