- Middle East conflict has compounded an already softer outlook for the farm sector after a strong 2025.
- Largest downgrade is for crop production, reflecting increased diesel, fertiliser and freight costs.
- A prolonged disruption to global energy and shipping markets could see farm GDP contract grow by an average -0.5% p.a. over 2026-2027 compared to our baseline forecast of 0.3%.
- Westpac Agriculture Commodity Price Index firmed in March with gains recorded across most commodities.
Australia's farm sector is entering a more challenging phase in 2026 after a strong 2025, with rising input costs, growing climate risks and more complex trade conditions expected to weigh on activity, according to Westpac's latest Quarterly Agriculture Report.
The farm sector expanded by 9.9% in 2025, underpinned by strong crop outcomes, elevated slaughter rates and robust overseas demand. While a moderation in growth was always expected as conditions normalised, the outlook has weakened more sharply as global turmoil has pushed up energy‑related costs and disrupted supply chains.
"Last year was strong for the Australian farm sector, but the backdrop has changed quite quickly," said Sian Fenner, Westpac Head of Business and Industry Economics.
"Higher fuel, fertiliser and freight costs are coming through at the same time activity was already expected to slow, and that combination is putting real pressure on farm margins."
Higher input costs are now feeding through to production decisions, particularly in cropping regions. The report highlights sharply higher diesel and fertiliser prices following disruption to global energy and shipping markets, alongside drier conditions across parts of southern Australia. Climate modelling points to a growing likelihood of El Niño, increasing downside risks to yields.
"While most growers have fertiliser secured for sowing, elevated prices are likely to limit top‑up applications later in the season," Fenner said.
"When prices are this high, top‑up applications become harder to justify, and that increases the risk of lower realised yields, particularly for wheat."
Livestock markets are expected to remain relatively tight for longer. Sheep and lamb supply is forecast to stay constrained as producers focus on rebuilding flocks, continuing to support prices even as volumes soften. Meat prices are expected to moderate later in the year but remain well above recent historical averages.
"Despite some moderation ahead, red meat prices are likely to remain elevated by historical standards, underpinned by tight supply and solid external demand," Fenner said.
"That will help offset some cost pressures, although margins remain under strain."
Exports remain a relative bright spot, with strong demand from the United States supporting beef shipments early in 2026. However, Westpac notes that more restrictive trade settings in China, shipping disruption through the Middle East and rising competition from major exporters such as Brazil are expected to temper export growth over the year ahead.
Looking forward, Westpac warns that a prolonged disruption to global energy and shipping markets would present the largest downside risk to the sector, squeezing farm margins and could see farm GDP contract grow by an average -0.5% p.a. over 2026-2027 compared to our baseline forecast of 0.3%.
"Australian agriculture has proven resilient, but 2026 is shaping up as a more difficult year. Costs, climate and trade risks are all moving in the wrong direction at once, and that's why the outlook is more cautious than it was a year ago," Fenner added.
