Article by: Hari Yellina
Australian farmers will generate a remarkable $81 billion in agricultural production this financial year, $3 billion more than predicted, thanks to near-perfect growing conditions and escalating costs. Farm cash incomes increased by 34%, indicating the second consecutive year of excellent growth for farm balance sheets. According to official government projections, soft commodity prices will approach 32-year highs in 2021-22, and increased rainfall from La Nina would boost farm gate output by $12 billion over the previous financial year.
“Australia has collected what will be the most lucrative winter crop ever,” Jared Greenville, executive director of the Australian Bureau of Agricultural and Resource Economics, told The Australian Financial Review ahead of the agency’s annual conference, which begins on Tuesday. Much of the bumper crop was exported, pushing agricultural exports to a new high of $64 billion. Grain shipments contributed the most to growth, while La Nia boosted local production while stifling output in Canada, Russia, and the United States, where wheat production decreased 20% year on year.
As the pandemic disruption fades and prices fall, production is predicted to drop to $76 billion and exports to $62 billion in 2022-23, albeit these would still be the second-highest levels on record. Flooding in southern Queensland and northern NSW may cause various fruits and vegetables to become more expensive. Economic output slowed in 2011 as a result of significant flooding, and certain goods’ prices rose. Wheat prices soared to over $US9.50 ($13.20) per bushel in the hours after Russian forces entered Ukraine, raising fears that the soft commodity might be targeted by international sanctions.
After reports that China had lifted all import restrictions on Russian wheat, the price fell in late-week European and US trade, only to rise beyond $US9 a bushel on Monday following a third round of sanctions. Mr Greenville believes the Ukraine issue will keep prices high, but that actions like China’s tariffs on Russian wheat may simply be a “shuffling of the deckchairs” in terms of global distribution patterns. Tobin Gorey, a commodities analyst at Commonwealth Bank believes prices are most likely to climb again, but the situation is quite volatile.
According to ABARES’ newest prediction and prognosis study, higher prices and a slower global recovery would boost output by $2.3 billion in 2022-23, but at a longer-term cost. Farm gate output is predicted to decline from historic highs to between $65 billion and $70 billion per year in the medium term, significantly below the National Farmers Federation’s objective of $100 billion by 2030. La Nina conditions appear to have peaked, and ABARES predicts a very dry or drought year over the forecast period, with repercussions for irrigated agriculture and the red meat industry. After large-scale culls during the drought that began in 2019, the latter is still rebuilding its herds.
In the medium term, rising input costs will become a major challenge as agricultural revenue declines while costs stay high. Mr Greenville believes it is critical for farms to invest in capital deepening in order to boost productivity and prepare for harsher times. Higher input costs will be exacerbated by rising gasoline and fertiliser prices, both of which are near record highs. Horticulture margins are projected to be impacted by labour costs as well.
“A continuous focus on productivity will be required,” ABARES stated, adding that price constraints will make capital investment to enhance productivity more difficult to finance. “Farm enterprises will have to strike a balance between the expenses and advantages of productivity-boosting technologies.” After reaching a high of $12.3 billion in 2022-23, the value of Australian wheat output will fall to $9.5 billion, before falling to between $5.8 billion and $9 billion in the long term. Oilseed production, which includes soft commodities like canola, is predicted to fall sharply from a record $5.8 billion this fiscal year to $3.5 billion in 2022-23, however considering recent extraordinarily favourable conditions; this would still be the second-highest output value on record.