Farm produce from every region of Australia poured into the 2022-23 season will make its way onto world markets like never before
The instigators behind our push for $100 billion of value from farmgate produce by 2030 look closer to the mark than ever before.
With several upward revision, the gross value of agricultural production is expected to settle on a record $81 billion from season 2021-22.
This beats the previous record by over $12 billion and gives year 2030 forecasters further inspiration.
This record result came about by chance, more than good management as the unprecedented result included a combination of record crop production, and the highest prices for farm produce in 32 years.
Growers have taken off the paddock at harvest the most valuable winter crop to date, and this even accounts for widespread downgrades in grain quality from many regions of New South Wales due to exceptionally wet conditions leading up to the harvest.
With all the enthusiasm $100 billion 2030 forecasters plucked up with their courageous outlook, and the chance of that prediction becoming fact, they have blindsided us a little by now adding fisheries and forestry production to agriculture, to reach a record total value of almost $87 billion in 2021–22.
What we have in store for season 2022–23 as far as the value of production is not a runaway train that $100 billion 2030 forecasters will want to contemplate with the prospect of more average seasonal conditions facing both growers and livestock producers.
But to offset more timid estimates the growers and livestock producers themselves may decide to continue the expansion our industry will need to reach and maintain the high levels expected by 2030. Afterall, their confidence is at an all-time high.
In addition, international market price levels could remain higher for longer in the event of continued disruptions, a situation that would add around $2.3 billion to gross value in 2022-23.
The following summary from the specialists at ANZ Agribusiness gives an insight into possible scenarios for your farming sector. The predictions cover cattle prices, grain, sheep, wool and dairy sectors.
Grain hits record levels
Australian grain farmers know all too well that contrary to what some people may think, there’s never really a “downtime” of year.
Certainly, the sowing and harvest periods are intensively busy, but the rest of the year involves either monitoring the crop in the ground or providing the inputs needed to maximise its potential.
For instance, maintaining and upgrading all the plant and equipment needed to run an efficient operation, as well as all the other aspects of a current farm’s requirements.
That said, the period around February, when the harvest is effectively finished across the country, at least provides the industry with some kind of a breather to reflect on the harvest just passed and evaluate the factors likely to impact the year ahead.
This could include both the choice of crops to be sown, as well as the variables that may impact grain prices.
Despite some concerns toward the end of the season, the 2021-22 winter grain crop hit record levels with 61.9 million tonnes harvested.
In particular, the wheat crop reached a record value of $12.3 billion, while barley also reached its highest production value ever of $3.8 billion, despite earlier concerns on the impact of Chinese tariffs that did change some barley farmers’ planting intentions.
For wheat, while the record harvest of 34 million tonnes was up around 0.7 million tonnes, or 2% up on the previous year, it was a massive rise of around 135% over the drought impacted crop of 2019-20.
The record volume was particularly boosted by optimal growing conditions in Western Australia, that usually accounts for around 40% of the national wheat crop.
While there had been concern late in 2021 around the possible impact of weather conditions on the crop in some regions, it ultimately had a minor bearing on the overall harvest volume.
The sharp increase in the proportion of feed wheat as part of the overall harvest had a notable impact on wheat prices.
Ordinarily, the price gap between feed wheat and milling wheat is around $20 to $40 per tonne. However, given the major volume of feed wheat, this gap grew to around $110 to $150 per tonne.
Notably, milling wheat prices rose sharply from their pre-harvest levels, while feed wheat prices declined from those levels, although remained relatively high based on strong global demand.
In line with the record wheat harvest, we are also likely to see record wheat export levels of around 25.5 million tonnes, up around 7% on the previous year.
This will be driven not just by the record crop, but by ongoing strong global grain import demand. While Indonesia would ordinarily be our largest wheat export market, the 2021-22 season has seen exports to China reach around 0.93 million tonnes, over double those to Indonesia in the same period.
While the bulk of exports continues to be Asian markets, exports to African markets continue to grow strongly.
While not at the same heights as the wheat crop, the barley harvest of thirteen million tonnes in 2021-22 is still estimated to have been the third-largest ever, not far behind the record crop of 13.5 million tonnes in 2016-17.
The imposition by China of prohibitive tariffs in 2020 have not had a major impact on barley plantings. If anything, the shift of some barley acreage towards canola was driven by high oilseed prices at the time.
Just as the weather had impacted the wheat crop in different regions, the quality of barley in some regions of NSW, as well as northern Victoria, was also downgraded as a result of heavy rainfall.
Given that most barley from these areas is feed quality, the impact on price and exports was minimal. In terms of barley export, overall volumes rose by around 2% to 8.5 million tonnes.
With the Chinese tariffs meaning that barley exports to that country have fallen, the largest market is now Saudi Arabia, which now accounts for around 36% of all exports.
Other major barley markets include Japan, Thailand and Vietnam.
Domestically, strong feedlot utilisation has continued to drive domestic barley demand, with this trend likely to continue, on the back of the continuing growth of the domestic cattle herd.
Looking ahead, grain growers will be factoring in the outlook for fertiliser and chemical prices into their planting strategies, particularly given the ongoing uncertainty around global supply chain disruptions and Chinese export bans.
One impact may be a slight shift by some producers to more legume crops, while other producers may accept that reduced fertiliser usage may lead to lower yields than over the past two years.
Record cattle stock numbers ahead
On most fronts, the cattle and beef industry heads into 2022 in an excellent position.
Nationally, the country’s cattle herd is forecast to continue to climb, and this will ease the tight supply issues that have impacted the sector as it recovers from a drought that ran for three years in some parts.
Both domestically and globally, demand for beef will continue to grow. At the same time, in our favour, many major international competitors are likely to experience a range of supply challenges, including herd declines, supply chain disruption, and food safety concerns.
As the industry moves through the first quarter of 2022, prices remain high, but there is potential for price volatility over the coming months.
At the start of February 2022, the EYCI saw a two-day fall of almost 80c/kg.
While this meant that prices still stayed above 1,100c/kg, it did highlight the potential for some kind of correction to finally hit the market, predicted by many observers over the past two years, yet never happening.
There are several factors behind this fall, both direct and indirect, but it will be the trend to watch through this year.
At the saleyard level, the fact that the fall happened at the start of February may well reflect the fact that many farmers had actively participated in the annual weaner sales early in January and had less need to restock than had been the case through 2021.
In the medium term, the Bureau of Meteorology is forecasting above-average rainfall for the major cattle regions of NSW and Queensland, with an average rainfall forecast for almost every other cattle region.
This could mean that most of the country will see a continuation of the good pastures experienced over the past two years.
In addition, a forecast of above-average temperatures for Queensland, combined with the rain should see enhanced pasture growth, lifting the potential for heightened restocking activity
In southern Australia, given the likelihood of a third straight good season, the large herd of young breeding females and heifers, already in a good condition and on favourable pasture, are likely to see high calving percentages, further boosting herd growth.
In the northern cattle area, where rainfall over the past two years has been less favourable, the herd growth is likely to remain slower, at least until those regions have seen two successive seasons of good conditions.
Overall, the national cattle herd is forecast to grow by 4% over the year, reaching 27.2 million head in 2022.
On the current projects, this could see the herd continuing to grow to 28.2 million head by 2024, which would be the highest level since 2014.
One important result of the strong herd growth will be an easing of the tight supply of slaughter numbers which have impacted the beef supply chain throughout the post-drought restocking period.
In 2022, particularly with calves from late 2020 and early 2021 reaching processor weight, national slaughter numbers are forecast to rise by an impressive 11% to 6.7 million head.
Looking further ahead, given optimal conditions, slaughter numbers are forecast to continue to grow strongly, reaching 7.85 million head by 2024.
This would be a rise of over 30% in 2021, highlighting the tight conditions for processors over the past year.
Notably, however the fact that even this figure would still be below the ten-year slaughter average emphasises the scale of the impact of the drought, and the time it takes to recover.
Given the rise in slaughter numbers, combined with improved animal weights, overall beef production is forecast to rise by 12% in 2022, to around 2.1 million tonnes.
Looking further ahead, the forecast beef production in 2024 of 2.44 million tonnes would be a new record, higher than the previous mark set in 2019 amid the drought induced high sell-off.
The US market is likely to strengthen for Australian exporters, as that country’s cattle herd enters a structural decline, and will require greater exports to meet ongoing strong domestic demand.
The South Korean market is also likely to present increased opportunities, due to reduced supplies of the US beef.
For the Chinese market, overall beef imports are forecast to increase by 10% in 2022 to around 200,000 tonnes.
Current predictions are that the bulk of this will be filled by exports from Brazil and Argentina, with Australia likely to see a minor increase in exports.
Beef exports to China remain somewhat unpredictable, driven by factors at both ends of the supply chain.
Sheep have the numbers
Sheep yardings have fallen as producers hold back stock from the saleyard until prices stabilise.
And the strong lambing season means that there is likely to be a significant backlog of heavier stock ready to hit the market in the coming months, this may put some downward pressure on prices.
While the National Trade Lamb Indicator has been in a steady decline from the heights of 950c in August 2021, in line with seasonal expectations, lower prices have also seen yardings decline considerably.
Since mid 2021, prices across categories have been mixed, with mutton prices now lower than winter 2021, due to the decline in demand from export markets, while lighter lamb categories have underperformed the heavier categories during the same time.
Contrary to the fall in prices across the eastern States, the saleyard prices in Western Australia have climbed sharply in recent weeks, as processor activity continue, while New South Wales prices rallied strongly in late January as yarding activity fell sharply.
Producers continued to send lambs to market in the Southern States, although in lesser numbers, and as a result, Victoria, Tasmania and South Australian saleyards have seen the largest decline in prices.
This downward trend is not expected to continue however, as abattoirs resume processing and buyers return to the saleyards, producers are expected to follow.
A strong season means many producers have continued to fatten lambs on farm instead of sending them to market, as such there are likely to be a significant number of trade and heavy lambs hitting the market in the coming weeks and months.
As a measure of how many lambs have been kept back from the saleyards, in the first four weeks of 2022 yardings were down almost one third on the same period last year.
This means an additional 200,000 lambs may be expected to hit the saleyards in the short-term.
While domestic demand and the national flock rebuild has been the primary driving force behind the strong performance of the sheep industry in recent years, the growing international demand has also been a key factor.
Historically, Australian lamb has traded at a discount to European and United Kingdom lamb, but slightly more expensive than New Zealand lamb.
A recent strong increase in New Zealand lamb prices stemming primarily from export demand from the United States, China and Europe has seen New Zealand lamb prices recently return to par with Australian lamb.
At the same time, the relatively small flock size across Europe and the UK has meant that they have generally higher operational costs, but to a certain extent, is accepted by European consumers who see local lamb as the higher quality product
The continued demand from China for lamb as a pork substitute also helped push New Zealand back up to par with the Australian product.
Historically, Australian lamb has traded at a discount to European and United Kingdom lamb but has been slightly more expensive than New Zealand lamb.
But with a decline in UK lamb production, it is expected that Australian produce will find a demand against the generally more expensive UK and European lamb.
Added to New Zealand mutton now surpassing the price of Australian mutton, the outlook for the competitiveness of Australian sheep exports is very strong.
Wool holds its line
Wool prices have seen a strong start to the year with the Eastern Market Indicator (EMI) entering January nearing an annual high of just under 1450Ac/kg.
Price gains have been seen across all micron categories, although the coarser categories are still down on the higher levels reached early in 2021.
This has meant that the first 5 weeks of 2022 has seen the market trading in the green.
Australia wide, the sense of optimism in both sheep and wool is anticipated to see the domestic flock reach 70 million head in 2022, while wool production is also expected to jump an exceptional 8% on the back of higher flock numbers and a strong season.
The local wool market entered February after 5 solid weeks of growth, and the EMI bettering the psychologically significant threshold of March 2020 – the start of the covid downturn for the wool industry.
The EMI has also been substantially supported by global nervousness around Russia and Ukraine which has led to the appreciation of the US dollar against the Aussie dollar as capital flows towards the major global currencies.
Demand from China, India and Europe all performed strongly and prices for all microns improved despite a greater number of bales on offer for the season.
The finer end of the market performed particularly strongly in late January, with 17-micron wool reaching its highest level for both 2021 and 2022, as did 21 to 23 micron wool.
Looking ahead, the number of bales on offer is expected to be down on last year in the latter part of February which may put further upward pressure on prices.
The recovery of the United States and European economies are seeing a return to ‘normal’ demand for apparel, including demand for woollen suits as workers start to return to the office.
A harsh winter in India has also boosted demand for warm clothing and woollen material.
With a strong flock rebuild underway, the Australian Wool Production Forecasting Committee has forecast an 8% increase in 2021-22 for shorn wool production.
This predicated on an increase of at least 6.6% in all States, with an increase of 21% in Queensland and 14% in Tasmania.
This level of production assumes an increase in domestic flock numbers of over 3 million head, to 70 million head across the country.
One of the key issues facing the wool industry currently is the availability of shearers and the resulting increase in the cost of shearing.
With the rise in popularity of shedding breeds such as Australian Whites, attention has returned to the cost-return equation, particularly for meat breeds.
Sheep producers shearing costs now sit at just over 20% of total wool receipts – down from a high of 26.6% in 2005, but up on the 10-year average of 18.2%.
It is also of note that as a percentage of total costs and total receipts for sheep producers, the cost of shearing is at the lower end of its historic levels at 7.7% of total costs compared with a peak of 11.9% of total costs in 2001.
Dairy slow but steady
As agriculture continues to shine with the ongoing post-drought strength of the beef cattle and sheep markets, with high prices accompanying rebuilding numbers in the national herd and flock, the recovery in the national dairy sector is arguably slower.
This has been reflected in both milk production levels, as well as the scale of the national dairy herd.
That said, given that dairy products are a reasonably generic global commodity, the challenges impacting some of our global competitors are translating into a period of strong prices for dairy products, a development that will be of relief to many producers across the sector.
In terms of milk production, in the most recent figures available, for November 2021, the monthly milk production fell by around 5% to just under 900 million litres.
On its own, this decline is not surprising – our monthly milk production normally reaches an annual peak in October each year, before beginning a regular decline until it bottoms out in February.
What was notable, however, was that this was the fifth successive month that Australia’s milk production had been below the same month in the previous year.
If this trend continues, noting the average gap of these months over the previous year, then Australia’s 2021-22 milk production could potentially be heading for an overall figure of 8.6 billion litres, which would be around 200 million litres down on the previous marketing year.
Interestingly, based on those figures, the trends in YOY milk production differed markedly by region. Gippsland, Western Victoria, and Tasmania all saw falls on the same month for the previous year, while Northern Victoria, NSW, and SA all saw increases.
It is difficult to read too much into these variations, given that they could be driven by a variety of factors.
Differences in rainfall by region may have impacted pasture growth, which could have a flow-on effect on milk production, given the regional herd sizes remained the same.
However, particularly in areas that border each other, it could also be a result of the ongoing strength of the beef cattle market, and the impact of more dairy country being turned over to beef operations.
For some dairy regions, a similar challenge could be coming from the ongoing strength in the sheep industry, backed by strong lamb and mutton prices.
One further indication of the challenge to a sharp revival for the dairy industry is reflected in the trends for the overall dairy herd.
Under these figures, both the dairy cattle herd, as well as the milking herd, show no sign at the moment of reversing the downward trend they have now been following for the past decade.
Indeed, the current 2021-22 forecasts of a dairy cattle herd of 2.3 million head and a milking herd of 1.4 million head would both equal the lowest points in at least the last thirty years.
Importantly, while the overall volume of production, as well as the dairy herd, are each remaining low, this is not necessarily reflective of the current fortunes of Australia’s dairy farmers.
For a start, taken at a farm management level, average milk yields per cow have continued their ongoing steady rise.
To the industry’s credit, it is admirable that the forecast average yield for 2021/22 of around 6,600 litres is more than double the average figure in 1983/84.
For our estimated 4,600 dairy farmers, the current market is also a time for optimism, given the current high farmgate prices.
In particular, the record farmgate prices currently being paid to the dairy farmers in New Zealand, the world’s largest dairy exporter, is reflective of the current global conditions and bode well for Australian dairy farmers for the months ahead.
As most global economies continue their recovery from the major Covid disruptions, consumer demand for the dairy products continue to strengthen.
In many cases, this could even be enhanced, as the stronger focus on healthy diets sees even more of a shift to greater dairy consumption.
However, in terms of supply, each of the major global producers is seeing little to no growth, putting upward pressure on the prices.
Production from New Zealand has been essentially flat for the twelve months year-on-year, while the EU has seen a similar trend, based on declines in Germany, France, and the Netherlands.
In the US, while milk production was up slightly over the last twelve months, this trend is likely to decline in the coming years, as the herd goes through a contraction in size.
More prominent on the world market
While the grains and oilseeds sector may have two fundamental harvests each year, globally it is in a constant cycle of demand.
This longer-term analysis is particularly pertinent at the current time, with most grain and oilseed prices sitting at multi-year highs. This has largely been the result of geopolitical volatility, but also due to poorer crop forecasts in some regions, as well as ongoing strong demand as many economies gradually recover from Covid-related disruptions.
Using data from the USDA from 1999 to 2021, it is possible to examine several aspects of the world’s grains and oilseeds landscape over the past two decades and to discuss both the causes and possible opportunities for local growers.
One of the most-watched aspects of the global grain sector is the stock-to-use (SU) ratios or the level of grain in storage compared to the demand at the time. SU ratios have a major impact on the price, as low levels can trigger concerns of possible shortages, leading to enhanced buying levels, as countries seek to increase their stocks.
Looking at the data, it is unsurprising that both rice and wheat are by far from the two main crops with the highest SU levels. Each of these is a staple food for many countries, including noodles and bread.
The upward trend in SU ratios has largely continued since 2006-07, which was around the time that several countries and governments experienced food riots due to concerns over shortages, as many global exporters instituted temporary bans.
While grain can be stored for a reasonable period, it remains a perishable product, thus requiring reserves to be regularly replenished.
As a result, given that many countries are likely to seek to retain or increase food reserves, demand for these staples is unlikely to weaken markedly.
This is even despite a gradual shift from rice to meat in the diets of consumers in the countries where incomes are increasing.
Any discussion around global grain and oilseed stocks needs to have a major focus on China.
This is not just because China has around 20% of the world’s population and will therefore always be a major food consumer.
Importantly, this is also due to the policies of the Chinese government in terms of maintaining a healthy level of grain and oilseed stocks, as well as the feed needs of China’s complex animal supply chain.
For almost the past decade, China’s end stocks of both corn and rice have accounted for between 60 and 70% of the global total.
In terms of corn, China relies on having adequate levels of it for feed for the pork supply chain, particularly as it rebuilds its hog herd after the impact of African Swine Fever over the past few years.
In addition, China also needs to ensure that it will have adequate corn reserves for a reasonable term, given the fluctuations in its domestic corn industry. As the country has adjusted its program around stockpiling domestic corn, as well as paying minimum purchase prices, domestic production has shown a level of volatility.
While China’s high rice stocks are also a protection against possible, at times they are also as a result of fiscal levers used to maintain high domestic prices through government purchases.
For rice, as well as for corn and, to a degree, wheat, the high stocks can be interpreted as a positive sign that demand will stay strong for the long term.
However, particularly for exporters to China, a very high level of stocks could also be a sign that China may reduce buying for a period, increasing the need for alternative markets.
In terms of China’s level of concentration as an importer for global grains and oilseeds, it is interesting to look at this from two angles.
As far as China’s percentage of total global imports of any grain or oilseed, it is the dominant buyer of soybeans, largely as animal feed, as well as for cooking oil.
After this, however, it is a major gap to the next highest, barley and canola, both roughly between 20 and 30% of global imports. This highlights the largely diverse global market opportunities for grain and oilseed exports.
From a different angle, China’s reliance on some of the major crops remains extremely high.
In particular, China relies on imports for almost all of its soybeans and barley consumption.
Given the strength of the latter, it is little surprise that Australian barley exporters, shut out of China by high tariffs were quickly able to find new markets, as China quickly sought other major global barley exporters to fill this gap.
Interestingly, China is also reasonably reliant on imports of oats for its domestic consumption, a smaller but important opportunity for local growers.
From an Australian production perspective, it is interesting to observe the difference in export dependency between different crops over the period.
Certainly, the major crops of wheat, barley and canola remain overwhelmingly export focussed, with wheat and canola at times seeing exports exceed 80% of production.
One aspect which does stand out is the volatility of exports over that period. This could be driven by factors including enhanced domestic demand, particularly through feed, reduced production levels leading to the tight supply, and increased global competition.
Nevertheless, it is a further reminder that the high export levels cannot be taken for granted.