However, the bank warned the high cost of fuel, transport and fertiliser would continue to impact farmers' bottom line.

The latest Rural Bank Australian Agriculture Mid-year Outlook Report provides in-depth perspectives on supply, demand, and price outlooks for Australia's major agricultural commodities.

The report presents a detailed view on what lies ahead for Australian farmers with a comprehensive analysis of historical trends and future scenarios pointing to a largely positive second half of 2022.

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Rural Bank head of sales Andrew Smith said it was a positive outlook for farmers.

"Overall, the forecast is expected to hold producers in good stead during the second half of 2022 as Australian farmers reap the benefits of high commodity prices and strong production," Mr Smith said.

"However elevated input costs such as fuel, transport and fertiliser are expected to remain a headwind throughout the remainder of 2022.

"The three standout themes highlighted in the report as impacting the performance of Australian agriculture in the second half of 2022 are seasonal conditions, trade conditions and supply chain disruptions."

Mr Smith said the bank was forecasting above average Australian winter crop production for the third season in a row as a result of favourable conditions.

Horticulture is also expected to see strong production with supply expected to rebound following recent flooding in Queensland, which slashed supply and inflated the prices consumers have had to pay for fruit and vegetables at the checkout over the short term.

"Seasonal conditions continue to underpin strong production across most agricultural sectors," Mr Smith said.

"The wetter conditions will allow the rebuilding of the nation's cattle herd and sheep flock which will ensure strong beef, sheepmeat, wool and dairy production into the second half of 2022."

The report finds global trade conditions remain challenging for Australian producers although exporters have continued to adapt to barriers, such as trade tensions with China, by finding alternative markets with demand in south-east Asia expected to strengthen.

"The interim Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) signed in April is a bright spot on the horizon," Mr Smith said.

"It is expected to benefit Australian sheepmeat, almond, wool, lentil, and wine producers with improved access to the Indian market when the agreement comes into force, hopefully later in 2022".

Improved market access to the UK, with the Australia-UK FTA (A-UKFTA) expected to come into force in the back end of 2022, will also grow exports.

"Australian lamb exports are already on pace for a record year with export value tipping over $1 billion in the year-to-April, up 38 per cent from 2021," Mr Smith said.

"Domestically, food service demand will offer support to commodity prices by rising throughout the next six months as the effects of COVID-19 restrictions are unwound, international travel improves and increased hospitality staff hiring sees venues begin to operate at full capacity again."

In a summary of the agriculture sectors, the Rural Bank reports:

Cattle - Demand from re-stockers remains strong and cattle prices remain well above average. Australian beef production to rise in the second half of 2022. Australian cattle prices will ease marginally during the second half of 2022..

Cropping - Low international supply and strong export demand will support Australian cereal prices at high levels, though Australian growers' margins will be squeezed by the high cost of inputs. Lentils have been the standout performer of pulses this season, with prices regularly pushing $1000 per tonne.

Horticulture - Strong production, increasing export demand and high prices will benefit producers, though rising input and labour costs will impact grower margins. Rising prices may also weigh on domestic demand and shortages of lettuce, capsicum and spinach will continue for at least the next couple of months with onion supply also impacted.

Sheep - Sheep producers should benefit from increased lamb production and demand in key markets. Strong demand from the USA and a range of smaller markets to drive increased export value. Lamb and mutton prices will decline through the second half of the year but will remain above average.

Wool - Increased wool supply and some softening demand will see prices begin to stagnate. Australian wool producers are positioned to increase the supply and stabilise prices. Strong seasonal conditions are expected to grow flock numbers and increase wool production. There will be a growing premium for high quality fine wool, particularly at the 17-micron end.

Dairy - Higher yields from good seasonal conditions may support a slight increase in production for 2022/23, forecast at 0.5 per cent. Production growth is being curtailed by competition for land, high beef prices, rising input costs and labour shortages. Volatile global conditions and high prices will see an overall average outlook for the dairy industry. Australian dairy production is forecast to see a modest increase for the remainder of 2022; however, global supply will continue to be constrained. Butterfat products are in high global demand with current price levels reflecting this.

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