Skip to navigationSkip to contentSkip to footerHelp using this website - Accessibility statement
Advertisement

Drought shrinks grain harvest to decade lows

Subscribe to gift this article

Gift 5 articles to anyone you choose each month when you subscribe.

Subscribe now

Already a subscriber?

Australia is on track to produce its smallest winter grain crop for more a decade as tough times for farmers get even tougher, Rabobank says.

The specialist rural lender predicts the winter crop will reach just 27.7 million tonnes as the harvest kicks into gear in some parts of the country.

Record high Antarctic temperatures in August and September have taken a toll on the winter grain growing season. Reuters

The production shortages that have resulted in record premiums for grain for flour milling and to feed livestock are expected to put more pressure on food prices and further weaken Australia’s position in key export markets.

Rabobank expects a 50 per cent increase in grain imports after the federal government took the unusual step of allowing local flour millers to import some 360,000 tonnes of high-protein wheat from Canada this year.

The Rabobank production update represents a 6-million-tonne downgrade on the official federal forecast from last month of a 33.9-million-tonne winter crop.

Advertisement

Rabobank noted the end to the growing season had been affected by record high Antarctic temperatures in August and September that caused a rare phenomenon known as “sudden stratospheric warming”.

The last and only other such “sudden” event was recorded during the 2002 Australian drought and the Bureau of Meteorology is forecasting the strongest stratospheric warming on record this year.

Rabobank senior grains analyst Cheryl Kalisch Gordon said there was no sugarcoating the fact the grains industry was suffering the severe impact from three years of drought-affected production.

“This means that the tough times are getting tougher and the tail of enduring impacts of the drought is getting longer,” she said.

“And these impacts don’t just apply to cash flow for growers – they also relate to stymied expansion plans, as well as growing soil and resource management challenges."

Losing exports

Advertisement

Australia has already lost its grip on key export markets such as Indonesia, where the Black Sea and Argentina have stepped up, and Rabobank warned it was a long way back.

“Regaining market positioning will be increasingly difficult with every year that Australia does not have a buoyant export surplus,” Dr Kalisch Gordon said.

“This tough time for the Australian grains and oilseeds sector has reached the point where a break in the drought will just be the start of a now long road to recovery.”

Rabobank expects wheat production to fall to 15.84 million tonnes, 8 per cent down on last year and 32 per cent below the five-year average.

National Australia Bank has also sharply downgraded its wheat production forecast after unfavourable conditions in spring.

A break in the drought will just be the start of a now long road to recovery for the grains industry. 

Advertisement

NAB is tipping a 15.5-million-tonne wheat crop, down from 20 million tonnes in September, after hopes of a reasonable crop in Western Australia fizzled to about 6.2 million tonnes and growers in NSW started cutting crops for hay.

Rabobank predicts Australia to export about eight million tonnes of wheat, 3.9 million tonnes of barley and less than a million tonnes of canola. This would amount to a 15 per cent fall from last year’s exports.

GrainCorp port terminals on the east coast exported next to no grain in the past 12 months, when its trading and marketing arm suffered huge losses.

However, the diminishing production forecasts put GrainCorp in line for a payout of more than $40 million in the first year of a deal with insurance giant Aon designed to smooth out cash flow and earnings.

Dr Kalisch Gordon said the drought meant Australian grain prices would stay high and at the above-average basis levels that have made it uncompetitive on international markets.

The cost of grain to feed livestock has put pressure on meat, milk and eggs prices, but Rabobank said grain prices were likely to be capped by the increased imports.

Rabobank is tipping the dollar to depreciate to 66¢ against the greenback by September 2020 and make whatever Australian grain that is available more competitive in export markets.

Brad Thompson writes across business and politics from Western Australia for The Australian Financial Review. Brad is based in our Perth bureau. Connect with Brad on Twitter. Email Brad at brad.thompson@afr.com

Subscribe to gift this article

Gift 5 articles to anyone you choose each month when you subscribe.

Subscribe now

Already a subscriber?

Read More

Latest In Agriculture

Fetching latest articles

Most Viewed In Companies