While Australia’s main rural forecaster has trimmed forecast production levels for wheat, cotton and other agricultural commodities in 2015-16 as the expected El Nino triggered drought hits wide areas of rural Australia, livestock however should do okay.
The forecasts, from the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) in its June quarter Agricultural Commodities report show the impact of the fall in the value of the Aussie dollar in the past year – that will help offset weaker world prices in many cases, boosting returns to the rural sector.
The forecast is important for companies like Aust Ag Co, Elders, Websters, Ruralco, Bega, Warnambool Cheese and a host of suppliers to the sector – especially banks which are already under pressure over supporting drought stricken farmers in parts of Queensland and NSW.
“Higher export prices, in Australian dollar terms, are forecast for beef and veal, wool, barley, wine, lamb, canola, live feeder/slaughter cattle, rock lobster, mutton and dairy products in 2015-16. In contrast, export prices of wheat and sugar are forecast to decline," ABARES said
"The gross value of farm production is forecast to increase by 3.1 per cent to around $53.7 billion in 2015-16, following an estimated increase of 2.1 per cent to $52.1 billion in 2014-15. At this forecast level, the gross value of farm production in 2015-16 would be around 9 per cent higher than the average of $49.1 billion over the five years to 2014-15 in nominal terms,“ ABARES said.
In fact the performance of the livestock is behind the surprise rise in the estimated value of rural production next financial year to $53.7 billion, up nearly 3%. The value of crop production will edge up by just under 1%.
The forecasts show livestock industries will account for more than half the value of rural production next financial year – an estimated $27.2 billion which is a rise of 5.2%.
High prices at present for beef, lamb and wool are underpinning the rise the overall rise in the value of rural production, thanks to rising export demand for cattle and meat and the rebound in wool prices seen in recent months.
Exports will fall in the coming year as farmers compete with exporters to rebuild local herds and flocks (unless the drought deepens and forces more farmers to sell animals).
But it’s not all roses for livestock. The current drought has forced farmers in Queensland, NSW and parts of Victoria to turn off their animals and send them to market, meaning the size of the Australian livestock herd has fallen to its lowest in almost 20 years.
This has helped drive beef and veal exports to a record 1.3 million tonnes in the year ending June 30. If the El Nino ends, beef and cattle farmers will be looking to boost their flocks and herds next year, which will send saleyard prices sharply higher and curtail exports.
“If normal seasonal conditions return in the first half of 2016, we expect strong herd rebuilding because of the high slaughter rates that have run down the numbers," according to Jammie Penm, ABARES chief commodity analyst.
ABARES forecasts Australian beef and veal exports will tumble 10% year-on-year, owing to lower supply in the first half of 2016, mirroring a similar decline in the national cattle slaughter.
For crops the news is more mixed. The ABARES forecast sees a rise of just 0.9% in the value of cropping sector production next financial year to $26.5 million. But that will be much better than the expected fall of 6.8% in the year to June 30.
But it cautioned the El Niño event across the nation at present made predictions difficult. “Obviously an El Niño is correlated to a drier than usual weather pattern in Australia, but a lot will come down to the timing of rain, which makes it quite hard to forecast,” the Bureau said.
Dairy would see a modest increase of 2% in export values, thanks to the rise in global production and weakening in the growth rate of demand, especially in China.
The impact of El Nino is clear from some of the major crops.
For example ABARES now forecasts that Australian cotton production for the 2015-16 year will be 520,000 bales, down from the previous estimate of 559,000 in March.
Wheat production is forecast to reach 23.6 million tonnes in the 2015-16 season starting July 1, well below its previous forecast of 24.4 million.
ABARES said that farm export earnings for 2015-16 will be lower, reflecting the expected fall in livestock production (and assuming herd and flock rebuilding during the January-June period of next year).
The Bureau estimated export earnings from farm commodities to be around $41.8 billion in 2015-16, compared with an estimated $42.4 billion in the year about to end on June 30.
ABARES executive director Karen Schneider said despite the forecast year-on-year fall, export earnings for farm commodities in 2015–16 were still expected to be around 10% higher than the average of five years to 2014–15 in nominal terms.
“Export earnings for fisheries products are forecast to continue to grow, increasing by 6.3 per cent to around $1.6 billion, following an estimated increase of 13.9 per cent to $1.5 billion in 2014–15,” she said.
Export earnings are expected to increase in 2015–16 for coarse grains (up by 6%), live sheep (6%), wool (5%), sugar (5%), dairy (2%) and lamb (2%).
Export earnings are forecast to fall for beef and veal (4%), wheat (5%), cotton (33%), live cattle (4%), and mutton (13%).
