A combination of extreme dry weather and damaging frost will deliver Australia its smallest winter crop in 10 years, according to Rabobank in its just-released Winter Crop Production Outlook.
In Rabobank’s Australian 2018/19 Winter Crop Production Outlook: Running on Empty, the specialist agribusiness bank forecasts a national harvest of just 29.3 million tonnes, down 23 per cent on last year, saying the 2018/19 winter crop season “will go down as one of the worst in eastern Australia’s history”.
Were it not for the better harvest prospects in Western Australia – the only state where grain production is forecast to increase – the country would be facing its lowest winter crop in the past 20 years, the bank says.
The reduced 2018/19 harvest will see WA, for the first time in 20 years, contributing more than half (52 per cent) of the national winter crop.
“For vast regions of the eastern states, there will be no harvest, and where there is a harvest, yields will be anywhere between 30 per cent and 50 per cent down on average,” the report says. “Late, to no, season-opening rains, below-average to lowest-on-average rainfall and above-average temperatures during the growing season have been coupled with damaging frost to reduce harvest volumes and affect grain quality.”
Reduced national production – along with continuing strong demand for feed grain in the drought-afflicted eastern states – is, however, expected to see record Australian grain prices hold well into 2019.
“Following below-average winter crop harvest volumes in 2017/18, a now-extended period of elevated livestock feed demand and with 2018/19’s winter harvest set to fall another 23 per cent year on year, Australian grain stocks are severely diminished and the east coast grain balance is running on empty,” the report says.
“Record high prices for cereals and canola have been reached at all major ports, driven by this local supply deficit, and are at record basis levels over international prices.”
But while higher prices will offset lower crop yields for some growers, they will deliver little solace to many with significantly-reduced, or no, yield prospects, says report co-author, Rabobank agricultural analyst Wes Lefroy.
The reduced harvest – combined with strong local demand and prices – also has significant implications for Australia’s export markets, with “grains exports to be severely curtailed in 2018/19”.
The bank forecasts total Australian grain exports to be down approximately 50 per cent on last year, at 13.9 million tonnes. Wheat exports are predicted to decline almost 50 per cent on last year, to 8.6 million tonnes – the lowest export volume since 2007.
Barley exports are set to be down 48 per cent on last year at 3.0 million tonnes, while Australia looks set to export just 1.5 million tonnes of canola, 41 per cent lower than 2017/18.
“The hit to Australia’s export capacity is certainly one of the big concerns emanating from the reduced harvest outlook,” Mr Lefroy says. “This will severely pressure our market share in crucial markets in South East Asia, certainly in 2018/19, but also placing our competitors, such as the Black Sea and Argentina, in the box seat to get a greater stronghold on these markets into the future.”
Harvest hit
At a projected 29.3 million tonnes (31 per cent below the five-year average), the total national winter crop in 2018/19 would be Australia’s fourth lowest in the past 20 seasons – with lows exceeded only in previous years of severe drought – 2002/03, 2006/07 and 2007/08.
Mr Lefroy said significant rainfall across many parts of the country in recent weeks had come too late to have any meaningful impact on the nation’s grain production numbers.
“While some crops in southern regions may benefit from falls in October, the overall impact on improving national grains production will be minimal,” he said. “In other regions, rain at this later stage of the season is potentially more a hindrance to harvest progress.”
For the second year in a row, the report says, winter grain production will be lower than last year in all states except Western Australia, where that state’s overall grain production is forecast to be up three per cent on last year, at 15 million tonnes.
Mr Lefroy said WA production had been touted to be higher – potentially breaking the state’s record harvest of 17.7 million tonnes in 2016/17 – however significant back-to-back frosts in early spring had limited production in southern parts of the state, while crop potential in the north had been lowered due to lack of finishing rain.
The biggest production declines are forecast for New South Wales and Queensland – both expected to fall by 51 per cent on last season to land at 3.2 million tonnes and 0.7 million tonnes respectively.
Victoria is not far behind, with total grain production predicted to fall 42 per cent from last season to 4.4 million tonnes, while South Australia has fared relatively better, with its 2018/19 winter crop estimated to be down 16 per cent to 5.8 million tonnes.
“Victoria’s overall grain production has been the victim of inconsistent rainfall as well as severe frost during the past six weeks which has downgraded prospects,” Mr Lefroy said.
“For South Australia, it has been a variable story in the 2018 growing season. Growers have also faced adverse weather, with production in a number of regions limited by dry weather, frost or a combination of both. However, pockets of the central and southern Eyre Peninsula, the Yorke Peninsula and the south east managed to escape weather challenges and we expect above-average yields in these areas."
Commodities
Pulse production has been hardest hit in this year’s winter crop downgrade, Rabobank said, down 43 per cent on last season and 41 per cent below the five-year average at 1.6 million tonnes.
Mr Lefroy said this was the result of a combination of lower planted areas – due to pulse prices coming down from record highs seen in 2016 and 2017 – and poorer seasonal conditions. “Queensland and northern New South Wales, which are home to Australia’s chickpea production, have also been the worst-affected drought regions, so yields will also be well down,” he said.
Canola production is also significantly impacted, expected to be down 32 per cent on last year and also 32 per cent lower than the five-year average, at 2.5 million tonnes.
Australia’s national wheat harvest is forecast to come in at 16.8 million tonnes, down 32 per cent on last year and 21 per cent lower than the five-year average.
Price outlook
Australian grain prices are forecast to remain high well into 2019, according to the report.
Mr Lefroy said an increasingly tight east coast feed balance had taken wheat and barley prices progressively higher nationally in 2018.
“Wheat basis is at decade highs across the east coast and SA, while ‘domestic’ exports of grain to the east have taken WA basis to seven-year highs. And grain and train shipments from SA and WA are expected to continue well into 2019,” he said.
Mr Lefroy said Australian cereal grain prices were expected to stay at current elevated levels, with any softening before November 2019 likely to be minimal and dependent on either a good autumn break or summer crop prospects – neither of which are currently on the radar.
For canola, rapidly-declining crop prospects and increasingly scarce supplies have also taken domestic prices to decade highs across the east coast, Rabobank says.
Global wheat prices are forecast to remain in the higher range reached this year into 2019.
“Expectations of the first decline in global wheat ending stocks in six years in 2018/19 have moved global pricing up 15 per cent in 2018 and above USC 500 a bushel for the first time in two-and-a-half years,” the report said.
“We forecast prices to remain in the higher range of USC 550-550 a bushel over the next 12 months, but with some softening in Q2 2019 as an expanded northern hemisphere wheat harvest becomes apparent”.
Rabobank Australia & New Zealand Group is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 38 countries, servicing the needs of approximately 8.4 million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 94 branches throughout Australia and New Zealand.
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