Australia's agriculture sector looks set for a better year in 2016 following the hot, dry conditions of 2015, according to global food and agribusiness bank Rabobank.
Rabobank says farmers will benefit from the dissipation of the El Nino weather pattern, a further weakening of the Australian dollar and lower oil prices helping to ease input costs.
But any further softening of the Chinese economy could hurt demand for Australian agricultural exports.
Volatility in global financial markets could also be a negative influence should it spread to commodity markets.
Rabobank's Agribusiness Outlook 2016 report, released on Monday, said the outlook was positive for most agricultural sectors, especially beef and sheep producers.
Rabobank's manager of country banking in Australia, Todd Charteris, said the El Nino weather pattern in 2015 had hindered production, especially the winter grain crop.
"After enduring a hot and dry year, it looks as though 2016 is shaping up to be more favourable for producers, with expectations of wet, cooler weather as we transition to more neutral conditions in coming months," Mr Charteris said.
He said the Australian dollar is expected to drop to 64 US cents by the end of the year, which would be a boon for producers.
But currency movements among other exporting nations would also affect Australia's competitiveness.
Significant currency devaluations among Australia's key global competitors was encouraging the production of agricultural commodities in some regions despite high global stocks and falling prices in US dollar terms.
For example, the Russian rouble had fallen by 50 per cent against the US dollar since the start of 2014, compared to a 20 per cent fall in the Australian dollar.
Rabobank said market conditions are bullish for sugar and cotton, with prices expected to be supported by a tightening in production.
Global dairy markets are expected to lift towards the latter half of 2016.
The outlook is strong for beef and sheep, but prices for grains and oilseeds were likely to be constrained by large global stocks and sluggish demand.
Wheat prices are expected to be underpinned by the weakening Australian dollar and strong domestic demand.
