Australia is set for its third bumper season of crops in a row, but the increased production will probably bring little relief at the cash register as rising global demand pushes prices skyward.
Australian farmers will plant an area almost the size of England this winter as they try to take advantage of soaring global food prices and a third year of good rains.
The quality of production, though, may be hit by waterlogged fields and reduced fertiliser use as those costs surge, according to Rabobank. Local manufacturers, too, say they’re under strain as raw material and other prices climb and not all of the increases can be passed on.
This winter, farmers will plant a record 23.83m hectares, up 1% on last year, and just shy of England’s 24.36m total area, the bank said in its Winter Crop Outlook. That tally is also 11% more than the five-year average, with wheat plantings up 1.4% and canola, an oilseed, up by 20.9%. Plantings of barley, oats and pulses have dropped.
Australia's winter crop plantings are pointing to another bumper year - provided it doesn't get too wet, @RabobankAU says. pic.twitter.com/bWsUpdYV7h
— Peter Hannam (@p_hannam) May 31, 2022
Victoria will see 10% more land planted, as croppers respond to “amazing prices” and favourable conditions.
“Farmers are basically not only planting to the maximum ability on their operations, they’re starting to lease land [such as from dairy farms] that typically isn’t even used for cropping,” said Dennis Voznesenski, an agriculture analyst with RaboResearch, a unit of the bank.
Most farming areas have had good rains for a third winter, and even South Australia has lately had falls that closed some of the gap with historical norms.
Rainfall is above long-term averages in most growing regions, with rains in SA of late helping to close some of the deficiencies in that part of the country. (Source: @RabobankAU ) pic.twitter.com/REi7QBmlgd
— Peter Hannam (@p_hannam) May 31, 2022
Too much rain, though, has forced some farmers to delay or even replant crops – including three plantings of canola in some parts of New South Wales, Voznesenski said.
Other challenges include higher costs for diesel and agrochemicals from pesticides to fertilisers. And while prices have been hitting record levels globally, limited export capacity has hindered exports, meaning farmers have missed out on some of the best prices, he said.
However, Tanya Barden, chief executive of the Food & Grocery Council, said local food manufacturers hadn’t seen much benefit. They were struggling from unprecedented steepening prices for all manner of inputs, from wheat to energy and freight and packaging costs.
“Input costs had risen by 50% over the last decade, and so profitability has dropped from $8bn [a year] to $5bn, and capital investment stagnated,” Barden said. “Industry now is not in a position where it’s able to keep absorbing all these massive additional levels of cost increases.”
While grocery food prices rose 5.3% in the year to March, according to ABS data, they rose 4% in the previous three months alone, she said.
With the full impact of Russia’s invasion of Ukraine and Covid-related disruptions in China still to be felt, it was likely food price inflation would quicken in this and coming quarters, she said.
A separate report by ANZ on Tuesday, meanwhile, argued the world faced a “prolonged global food crisis” caused by lost exports from Russia and Ukraine, two of the biggest exporters.
Australia is a sizeable player in world food markets - but only about half as big as Ukraine, and exports from there are looking too promising. (Germany as a major food exporter might surprise a few people too...) (Source: @ANZ_Research) pic.twitter.com/XGp9Z5Prri
— Peter Hannam (@p_hannam) May 31, 2022
“Higher dependence on imported food makes African countries vulnerable to a severe food crisis,” the report said, with many other developing nations also facing rising food price inflation that could prove politically destabilising.
By some measures, the risks are more elevated than during that last major spike in food prices in 2007-08 that led to social upheaval in the Middle East, among other areas.
The current food crisis is looking worse than the 2007-08 one, and arguably has a way to go yet. Source: @ANZ_Research pic.twitter.com/Hph07yr65K
— Peter Hannam (@p_hannam) May 31, 2022
Back-to-back annual La Niña weather patterns in the Pacific have also contributed to poor harvests, ANZ said. (Recent climate modelling shows the current La Niña will linger longer than expected, with the possibility of it reforming later in 2022.)
The report also noted that global grain inventories look “precarious”, with the exception of China.
Beijing has been stockpiling soft commodities for the past few years and now holds more than half the world’s quantities of key grains.
China learnt the lessons of the last food crisis, and have (at least according to reported data) squirrelled away more than half the world's grain inventories. If someone going to short of food, it doesn't look like being China... (Source: via @ANZ_Research ) pic.twitter.com/bpiZtiV8YV
— Peter Hannam (@p_hannam) May 31, 2022
The share of global corn stockpiles held by China is even higher.
Even so, the Chinese government is encouraging farmers to plant more grains to head off higher food prices, ANZ said.
Remarkably, China's corn stocks are about twice as much as the rest of the world combined. (This assumes the data reflects reality.) (Source: @ANZ_Research ) pic.twitter.com/fJFgSJdqNQ
— Peter Hannam (@p_hannam) May 31, 2022
Susan Kilsby, an agriculture economist with ANZ, said food inflation is going to be an issue that will “plague Australia and most other countries” well into 2023.
“Demand for grains tends to be relatively inelastic, so for global grain prices to ease we really need to see an increase in the supply of grain that is available to be exported globally,” Kilsby said.
While wheat plantings in Australia will be large by historical levels, yields may fall from the highs of recent years.
The outlook for winter is for above-average rainfall across most of the country. The view for July-Sept (see below) is much the same, and that might hinder farm output in some places or reduce quality. (Source: @BOM_au ) pic.twitter.com/3zUfVPxsyC
— Peter Hannam (@p_hannam) May 31, 2022
“La Niña brings more rains in Australia and Asia, while drought in the Americas,” she said, adding the timing of the rainfall can also have a big effect on output.
Rabobank in its report noted Australian farmers have been investing heavily in new storage capacity to cope with increased production and also the limited capacity of grain handlers and exporters to move their crops.
One thing farmers have been doing is spending heaps on onfarm storage in anticipation of good crops that they might not be able to get to market when they want to. (Some of the spending though is being snagged by supply issues holding up the equipment, etc). (@RabobankAU ) pic.twitter.com/2ExC13e8WF
— Peter Hannam (@p_hannam) May 31, 2022
Supply chain snags, however, mean some of the additional spending is not resulting in the equipment arriving.
In some cases, farmers “can order them, but they’re not even told when they can get” the extra storage, with waits stretching out to a year.
“There’s a lot less certainty in their world at the moment,” Rabobank’s Voznesenski said.
