Grains Neil Thompson
Well good afternoon, ladies and gentlemen. Today, I'm going to wrap up the Australian 2013-14
cropping season, and give you a rundown of the outlook for the coming winter crop before
talking about some of the major issues that [? ABS ?] thinks will be important to Australian and
world markets over the next five years. [? ABS ?] estimates that Australia's winter crop in 201314 was the second largest on record, reaching 44 million tonnes. While this was a fantastic result
overall, there were some significant variations in production across the main cropping regions, as
Richard's already mentioned.
In Western Australia and South Australia, we saw excellent harvest results this season following
favourable in-crop rainfall. Again, while the state results were excellent on the whole, there were
significant areas the didn't fare so well, that's most notably the eastern wheat belt of WA. In
southern New South Wales and Victoria, we saw reasonable growing conditions throughout the
season. But low spring rainfall and frost in October meant a hard finish for many winter crops.
Despite this, overall winter crop production in 2013-14 is expected to be similar to the results
achieved in 2012-13.
In Northern New South Wales and Queensland prospects were poor before selling, and little to
no rain over the growing season, and it was a tough year for most growers. Unfortunately, it's
those last two regions I mentioned that are the main summer cropping regions for Australia. The
lack of spring rainfall in Northern New South Wales in Central and Southern Queensland has
meant that there was a significant reduction in summer planting season, particularly for sorghum.
As a result, [INAUDIBLE] is forecasting the total of summer crop production will fall by 25
percent to 4 million tonnes. A small winter crop and the prospect of a relatively small summer
crop has meant that feed prices have risen strongly over the past couple of months. For example,
the price of sorghum has risen by $50 since Christmas to reach around $360 a tonne last week.
This has pulled up feed grain prices along the East Coast, so growers who still have grain on
hand can take advantage of the favourable prices.
It shouldn't be surprising for me to tell you that the farm cash income results that [? ABS ?] is
projecting for the 2013-14 season have followed the fortunes of the season average farm cash
incomes for all grades farms, and that includes cropping specialists and mixed crop livestock
enterprises are forecast to rise by 10% to $224,000. This rise is largely driven by high cash
incomes in Western Australia and South Australia, which are expected to reach record highs.
Partially off-setting this are much lower farm cash incomes in Northern New South Wales in
Queensland.
Although not shown here, cash incomes for Victoria and Southern New South Wales grains
farms are expected to fall somewhat from last season, but relatively high in historical terms.
Following a mixed bag of results this season, the outlook for winter crops in 2014-15 looks
pretty similar to where we were 12 months ago. The map that should be on the screen now shows
soil moisture levels across the sheep wheat belt at the end of January. The darker the green on
the map, the wetter the soil, while the darker brown, the drier. And as you can see, the main
growing areas on the east and west coasts are predominantly brown.
Now in the past couple of weeks, we have had some good rainfall across Southern New South
Wales-- Southern WA, South Australia, Victoria, and Southern New South Wales. And in those
currently dry areas, this rain will certainly improve upper layer soil moisture, which will help in
the initial growth stages after planting. But for lower level soil moisture, which is important for
the latter stages of crop development, these rains are less likely to have a big impact.
Because of this, we're expecting the plantings in the coming season will favour barley and wheat
over Canola, which is less tolerant to dry conditions. Dry soils also mean the in-crop rainfall will
be important for the coming season. While relying in-crop rainfall isn't necessarily a bad thing,
it's certainly a risk to crop development and could lead to significant variations in production, as
you've seen this season. Turning to the outlook for the world in 2014-15, we're expecting another
season of relatively high production. Wheat and oil seeds production is forecast remained largely
unchanged from last season, while coarse grains are expected to be down slightly.
Following the 2013-14 season where historically high yields were achieved in the European
Union, Canada, and the Black Sea region, we're expecting yields to come back to their longer
term averages. However, these declines in production are expected to be offset by improved
conditions in Latin America, particularly Brazil, and the US, particularly for wheat, following
dry conditions last season. In the coming year, we're also expecting a pickup in consumption,
particularly for coarse grains and oil seeds. Despite this rise in consumption though, we're still
expecting world stocks to remain relatively high, which will push world prices lower.
The largest price declines will be for oil seeds and wheat, which are forecast to decline by five
and seven percent, respectively. For corn, prices are expected to fall only marginally because
strong consumption growth and a decline in production will start to reduce record world stocks.
Despite these forecast declines, world prices will still be favourable when compared to historical
averages. With the outlook for the coming season out of way, I'd just like to mention some of the
issues that we think will be important to Australian growers over the next five years.
As Karen mentioned in this morning's opening session, [? ABS ?] is assuming that world
economic growth will strengthen over the next few years. This is expected to translate into a
pickup in income growth and drive an increase in meat consumption. As a result, demand for
grains and oil seeds for livestock feed, particularly soy beans and corn, is also expected to rise.
This increasing consumption is forecast to put upward pressure a process on prices for course
grains and oil seeds until 2017-18, when we expect producers to respond to the relatively high
prices by increasing production.
For wheat, prices are expected to remain relatively unchanged over outlook period. With steady
demand growth, we're expecting the expansion of global wheat area to be slower than that of
course grains and oil seeds, meaning that yield improvements will be the main driver of higher
wheat production. As I just mentioned, the main driver of rising prices is high demand for coarse
grains and oil seeds, which will be increasingly used the livestock feed and cooking oil. As Jamie
mentioned this morning, Chinese demand for these commodities is expected to be the major
contributor to world consumption growth.
But China's not alone. Other growing economies in Asia and in emerging Africa will also
contribute to an increase in world grains and oils consumption. And just to demonstrate the scale
of consumption growth we're talking about, I'd like to take a look at India. India is currently the
world's second largest grower of wheat. But it has a significant production surplus, which has
resulted in stocks reaching more than 40 million tonnes after the most recent harvest. And
generally, a surplus of this size would suggested that some structural adjustment to the industry
is on it's way. But consumption is expected to grow so rapidly over the next five years, that by
the end of the projection period, that production surplus is expected to all but disappear.
So now I've suggested that the world needs more grains, and that prices will encourage greater
production. The remaining piece the puzzle is where are those crops going to come from. And in
terms of corn and soybeans, the largest increase in supply will come from Latin America,
particularly through an expansion of area in Brazil and yield improvements. Yield improvements
will also make a strong contribution to production growth in the US, the world's reigning
soybean and corn producer. We're very lucky to have Joe here from the US Department of
Agriculture. So I'm looking forward to hearing his thoughts on the outlook for world production
from an American perspective next.
But what I'd like to spend some time on is the development of the Black Sea region. And just so
we're on the same page, I'm talking about the Russian Federation, Ukraine, and Kazakhstan.
Despite the current political turmoil, there's significant potential for this region to increase grains
and oil seeds production over the next five years and beyond. The greatest potential is in the
Russian Federation and Ukraine, where area and yield improvements can be made. But to
achieve this, the region requires large amounts of capital to improve farm and transport
infrastructure.
Even with this hurdle, [? ABS ?] is projecting that grains and oil seeds production in the region
will be 200 million tonnes by 2018-19, which is 10 percent higher than 2013-14. This rise in
production is projected to result in exports reaching almost 80 million tonnes over the same
period, which is 20 percent higher than 2013-14. With a larger proportion of the region's
production being exported, it is likely that there will be an increasing focus on improving quality
and consistency of grains supplied to the world market, which has been a criticism of Black Sea
region exports in the past. With relatively low production costs, and improving quality, grains
and oil seeds from the Black Sea are expected to become increasingly attractive to world buyers
over the medium term.
As a result, Australian exports, particularly of wheat, can expect to face greater competition for
cargos to our major export markets in Asia. Moving on to the outlook for Australia, we expect
grains and oil seeds production to rise by an average of around one percent a year to reach 46
million tonnes by 2018-19. As you can see, we're not expecting any major change in total
planted area over the medium term. But while total areas unchanged, Canola area is expected to
increase at the expense of Bali because of more favourable returns to growers. With little scope
for an expansion in cropping area, and more competition in world markets, productivity growth
will be key to maintaining improving farm gate returns for Australian growers over the medium
term.
Now if you've ever been to an outlook conference before, or even the previous session, you've
seen a graph like this. As you can see, Australia's productivity growth in cropping has slipped to
just one percent a year over the past decade. To remain globally competitive, the grains industry
will need to find new sources of growth. So I'm pleased we have Murray here to talk about the
innovations at his property and how they've improved his bottom line. For its part, ABS is doing
some interesting work on infrastructure, with particular attention being paid to grains transport.
And we're also talking to industry participants about regulatory impediments and how they may
be reduced. Before I finish, I'd just like to thank our survey cooperators, who make much of the
work done by ABS possible, and also Richard and the GRDC for their continuing support this
event. Thank you.