DRY conditions and the high Australian dollar will have a big impact on commmodity prices this year.
Rabobank commodity analyst Tracey Allen said the elevated Aussie dollar would put pressure on export earnings and create a "headwind through 2013.''"We're beginning to see agribusinesses come to terms witn the higher dollar and look for economies elsewhere,'' Ms Allen said.
She said the higher dollar was being driven by weakness in the US dollar.
"There's no end in the medium term because Australia's economy is performing in a strong fashion,'' Ms Allen said.
"The local resource sector slowed in the second half of 2012, but it is still comparably strong.''
Ms Allen said the seasonal conditions in Australia would play a big role this year.
"The record heatwaves have come on the back of prolonged dry conditions we've had through winter 2012,'' Ms Allen said.
"The crop is off, but the yields were constrained by the dry weather.''
She said the focus would now turn to pasture growth for graziers and looking towards the next winter crop.
"It's important to receive some rain to irmpvoe the soil moisture profile, particularly for north west Victoria and south eastern South Australia,'' Ms Allen said.
"Rain is very important in the next three months as it will enable people to make planting decisions.''
Ms Allen said 2013 was shaping up to be a normal to drier than normal year.
Ms Allen said Australia was expected to produce 4.7 million cotton bales for the 2012-13 season.
"Most of the crop is under irrigation and enjoys the hot conditions,'' she said.
"We've seen a pull back in dryland cotton and we expect the price to improve to US80c a pound.''
The sugarcane industry is in recovery mode and heading more back to historical levels after two bad years with cyclones and floods.
Ms Allen said 32 million tonnes of sugarcane was expected to be harvested, which is the largest harvest for a few years.
It's expected that 3.2 million tonnes of raw sugar will be exported and there will be a total production of 4.7 million tonnes of raw sugar.
"Sugar is a very important market for Queensland and the state is ideally placed in for South East Asia where there is a supply deficit,'' Ms Allen said.
Feed availability has led to an increase in the sheepmeat flock.
Ms Allen said lamb prices were expedted to remain at current levels but the flock will decline due to feed levels.
She said beef was more export driven, particularly in the north of Australia.
"In the south east we tend to have more local consumption,'' Ms Allen said.
''People are selling cattle due to the lack of feed so there will be a bit of downward pressure, but we expect it to be about the same this year.''
Ms Allen said wool was more sensitive to global economic conditions.
"Wool is driven by economic conditions and global demand,'' she said.
"All microns are starting to plateau as there's an easing in global demand for raw wool.''
Ms Allen said she expected there to be a slight increase in production through the season due to the rebuilding of the herd.
"There's a bigger impact at the finer microns, driven by income and economics,'' she said.
Ms Allen said the volume of milk produced by the end of 2012 increased year-on-year.
"In 2013 Victoria, where we do have water for pasture, we expect that region to manage dry conditions ok,'' she said.
Ms Allen said warm conditions would affect production with the spring flush bringing peak production and slowing down during summer.
"There will be impacts localy from seasonal conditions,'' she said.
Ms Allen said it was expected global milk prices would move higher during the year, due to reduced supply on the world market.
She said the increasing competition from horticulture imports into Australia was impacting on local producers.
"Horticulture is labour intensive so exporters have to compete on the world stage,'' Ms Allen said.
"The big issue is labour and having to compete against the resources sector.
"There's the issue of increasing skill sets and more intensive use of machinery, but the issue is finding labour at the right price.''
