Farming across the ditch
By: Andrew Hobbs
Australian farmers, economists, and dealers are expecting a difficult year ahead. Andrew Hobbs crunches the numbers.
With Australia facing its third consecutive year of a drop in farm production, it's estimated that Australian farms will produce roughly one million tonnes less of grains in 2019–2020 – a three perfect fall (to 29.24 million tonnes) following an unexpectedly hot and dry spring. These figures are from the Australian Bureau of Agriculture and Resources Economics and Sciences (ABARES).
Released in December, the Australian Crop Report forecast is 13% down from the Bureau's production forecast in September 2019, reflecting bad news for Australia's winter crops. ABARES acting executive director Peter Gooday says bad spring weather in Western Australia and southern New South Wales was behind the fall, which is the third consecutive year the total volume of agricultural production has fallen – a trend that has not occurred for more than 60 years.
"(Total) forecast winter production is around 27% below the 10-year average to 2018–19 and is set to fall for the third consecutive year since record-high production was achieved in 2016–17," Peter says."High fodder prices and unfavourable seasonal conditions caused some crops planted for grains and oilseeds production to be cut for hay in regions with low levels of soil moisture at the beginning of spring."
Cruel summer
In its latest three-month rainfall outlook, the Bureau of Meteorology says summer rainfall will be below average in most parts of Queensland and northern New South Wales, which Peter says will likely have a knock on effect on grain sorghum and cotton crops.
ABARES forecasts that grain sorghum production will more than halve to 398,000 tonnes, the lowest on record, while cotton production is forecast to fall by 63% to around 177,000 tonnes of lint and 251,000 tonnes of cottonseed.
"A combination of the unfavourable summer outlook and very much below average levels of soil moisture at the end of spring means summer crop production is forecast to decline by 52% to around 1.2 million tonnes, which is 69% below 10-year average to 2018–19," Peter says.
"Fodder availability is likely to be higher in 2019–20 than last season and prices are expected to fall, but they are likely to remain well above average – a poor summer crop could add pressure to prices later in the year."
On the sheep's back
Higher prices for livestock products have helped to keep the value of Australia's total agricultural production high at $61 billion, Peter says, despite it being a three percent drop on the prior year. In its latest commodities report, ABARES predicts the livestock sector will make up 53% of Australia's total agricultural gross value in 2019–2020 – the first time this has happened since 1990–91 when the Wool Reserve Price Scheme collapsed.
"We're expecting to see higher prices year-on-year for cattle, sheep, lambs, pigs, and goats, which will partly offset the decline in production," Peter says. That said, with numerous drought-affected Australian cattle producers de-stocking their properties, Australia's cattle herd is forecast to reach its lowest level since the early 1990s.
With fewer animals available for slaughter, livestock production and exports are forecast to fall, and Peter says rebuilding Australia's cattle herd and sheep flock will take between five and 10 years to recover. "While cropping can be expected to rebound quickly once seasonal conditions improve, the livestock sector will require a longer period for pasture to recover and begin herd rebuilding," he says.
Uncertainty predicted
ABARES predicts Australian wheat production in 2019–2020 will be down eight percent on last year to around 15.9 million tonnes and canola down four percent to about 2.1 million tonnes – both 35% below their 10-year average.
Reduced production will result in lower exports, with ABARES forecasting the value of agricultural exports forecast to fall by eight percent to $45 billion in 2019–2020, also due in part to Australian grain being diverted from exports into the domestic market for feed and human consumption.
Transhipment of grain from Western Australia for use as domestic feed on the east coast is expected to continue, albeit in smaller volumes, and imports of Canadian milling wheat are also believed likely to continue in 2020.
ABARES also predicts that domestic prices for wheat and barley will remain elevated and above export parity in 2019–2020, with world prices to fall in light of positive grain growing conditions globally. In its Agri Commodities Research Outlook 2020, released in December, the bank says farmers across the world will operate in a period of uncertainty after years of relatively low prices.
"Wheat prices are expected to remain supported during the coming months, as Australia's disastrously low crop gets harvested and the market fears for export challenges from Argentina after a change in government," the report says.
"However, record global stock levels are expected by the end of 2019/20, and any price increase will be capped as long as the global corn market doesn't also bring serious price excitement to wheat." In light of these statistics and predictions, it may not surprise readers to learn that sentiment in Australia's agricultural sector is at a 15-month low.
The latest quarterly Rabobank Rural Confidence Survey, which interviews an average of 1000 primary producers every quarter, found 41%– more than two in every five people surveyed – expected conditions to worsen in the coming year.
Rabobank Australia CEO Peter Knoblanche says the drought was the primary reason for farmers expecting economic conditions to worsen in the year ahead – particularly in NSW where the rate was 99%.
Across the nation, only 17% of farmers surveyed had a positive outlook on the year ahead – down from 25% in the September survey, while 31% expected things to stay the same. In Queensland, sentiment remained relatively unchanged despite one of the worst droughts on record, which Knoblanche says reflects how long farmers have been enduring drought there – up to seven years in parts.
Machinery and transport
Transport and Machinery Association of Australia's Quarterly Dealer Business Sentiment Survey showing more than 50% of dealers expect their turnover to decline and 41% expect it to remain unchanged. TMA executive director Gary Northover says dealers expect their sales of new equipment to remain unchanged, with stocks of new machinery held on dealers floors considered to be average.
"Used equipment stocks are also considered to be at average levels for both tractors and combine harvesters whereas for balers, hay equipment, SP sprayers, and Implements inventory levels are considered to be low," he says.
Only 13.1% of dealers surveyed announced a plan to reduce their workforce, with 63.9% of those surveyed expecting there to be no change – up from 45.8% in the prior quarter. "Despite tougher trading conditions, there has been an increase in the number of dealers who see no reason to change their employment levels," Gary says.
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