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2020/21 Production, Exports, Farm Income and Prices
ABARES are predicting a record $66bn in ag production when 2020/21 concludes despite China trade tensions, global pandemic and low livestock numbers. This is a record $5bn ahead of the previous record year in 2016-17 and is on the back of the huge grain harvest. Red meat did however have an impact due to a 15% price hike though reduced numbers resulted in a fall of 8% in production value. Overall farm incomes are up 18% to $184,000 per farm.
Looking ahead ABARES is expecting 2021-22 to be down to $63.3bn, still a decent result though crops are not expected to match 20/21 and re-stockers will continue to hold and rebuild live-stock numbers.

And compared to last year exports for 20/21 are predicted to fall 4% to $46bn (third year in a row) due to lower livestock levels yet crop exports will increase 12% to $24bn.

And over the next five years, fruit, nuts and veges are predicted to rise to >20% of Aus agricultural production, who would have guessed.
Here’s how food prices are trending – take a look at beef:

Land Prices

Believe it or not, growth in farmland prices is outpacing the residential housing market:

  • the long-term rise is fueled by cheap debt and strong demand for agricultural goods
  • In March, a 179-hectare (442-acre) block of land in western Victoria sold for $23,588 a hectare, 3x’s Victoria’s median $7,590 a hectare price in 2019
  • WA land prices have doubled in the last three years
  • the new land values for outback Qld farms have come in at anything from plus 12% to 155%; over the entire 25 shires 40% of them have seen increases in excess of 80%
  • while large corporate agribusiness investment funds are active in the Australian market, local buyers are willing to pay the most and are said to be blowing corporates out of the water at the moment, by one commentator
  • lending rates are 2.2% estimated returns on the land at 4.4% and capital gain on the property at 10% are driving demand, one farmer saying… so at the end of the day, taking interest out, there’s about 12% a year return that I can be harnessing for future growth or benefit or expansion. Makes sense
  • new entrants such as farm managers wanting to buy are in largely shut out as banks may provide up to 95% of the finance but require 40-60% in security.

And if you’ve got the money, a couple of sales might interest you:

  • Australia’s biggest property owner Gina Rinehart is selling almost 2m ha of her holdings, though she’s keeping the other 8m ha she owns
  • seven big stations in WA and the NT covering some 1.876m ha are also on the market.

Foreign Ownership

Aus foreign ownership jumped by 9.4% in 12 months with a further 900k ha being bought taking the total to 53m ha. That’s around 14% of the total farmland and a big jump since I last looked – when we were talking well under 10%. The US is the biggest mover but China remains the largest foreign land holder at 9.2m ha, ironic when you think of the way they’ve been wading in on AU produce.

Cotton

After the smallest harvest in 40 years AU’s 2021 cotton harvest is shaping up to reach 2.4m bales, significantly up on last year though still down 28% on the 10 year average (ABARES). Put this down to mills shutting through COVID as clothing tanked and farmers not having a clear view of the future at planting.
Prices have been and are looking solid. I read of it being sold for $600 a bale though $550 seems to be about right – still solid. China, who normally takes 65% of the crop have been absent (but coming back in now) but have been replaced by the alternative markets of Bangladesh, Vietnam, Indonesia and Thailand.

The prediction is for increased plantings for 20/21 through increased water allocations though world market recovery has to be a big factor. And whilst synthetics will always keep a lid on prices ABARES is predicting decent returns for the next five years.

Horticulture

Fruit Production
This is expected to drop by as much as 17% and veges by 2% (due to the picking shortage) with prices set to rise by
7-29% (a big variance and it will be interesting to see what the outcome is). Consumer purchasing is not expected to change in the face of this but who do you think will retain the higher margins – the supermarket or farmer?

Northern Territory Horticulture
Fortune Agribusiness wants to build a 3500 hectare irrigated horticulture project at Singleton Station (which they own), about 400km north of Alice Springs in the Northern Territory. The farm will cultivate permanent crops such as citrus, grapes, avocados, onions, rockmelons and other crops. They’ve been granted the biggest water licence ever in the Territory so it can proceed with the $150 million project.

Freight
Airfreight costs jumped by around 800% so the International Freight Assistance Mechanism was developed which kept the sale of high value chilled meat, horticulture and other perishable foods feasible. Since March 2020, a total of 340,000 tonnes of red meat and pork has been exported via air freight – that’s $4.9 billion worth. This scheme has now been extended to September ’21.

Redmeat

Beef
It was extraordinary and way beyond our wildest dreams said one farmer following a recent sale. His stud cattle sold at 240% of prices he received last year. Another headline VERY low supplies had the cattle industry basking in big money.

And here’s the EYCI showing the impact of scarcity.

Supply continues to remain the biggest inhibiting factor affecting prices causing inconsistent supply on the world stage which it’s feared will cause buyers to other more reliable sources, mainly US and Brazil – according to MLA, the slaughter rate has been down by as much as 24% year on year. That’s a lot of beef.
And realistically these prices are unsustainable leading ABARES to predict a fall or 7% or around $125 per head in the short term then an ongoing tracking down in the medium term.
Though several years away, China’s pig herd will continue to recover and AU will continue to face pressure from the US and Brazil production increases.
In the last couple of weeks we are seeing prices battening back with farmers eyeing a drier than expected winter in some parts and becoming more aware of the intensification of the China scrap.
I’m still concerned about what happens when the national herd numbers recover and farmers look to recover a margin on what incredibly high prices they paid.

Processor Pain

The other big part of the conversation is the record levels of losses abattoirs are incurring.TEM modelling (Thomas Elder Markets) shows beef processor margins opened 2021 with the highest monthly loss on record at negative $340 per head in January and negative $339 in February.

This is set to continue through the year unless export prices (or supply) lifts significantly, which is unlikely. The thing is what’s made round goes round and as mentioned above, when herd numbers recover it will be the processors setting the price and that’ll be based against what the markets are prepared to pay, not internal scarcity of supply. The only two reason more processors aren’t shut down is because they need to keep their plants going and maintain continuity with customers.

Feedlots

The dominance of feedlots is starting to appear with 1.048m cattle finished on feed lots in 12 months to January – the third year in a row it’s been >1m. The feedlot influence has been growing, good news for grain growers, and will continue to do so (personally I love Aussie grain finished beef). Grass finished beef remains at 60% and in the US and parts of EU there’s a growing demand because it’s identified as sustainable.

Lamb

What’s happening in beef isn’t necessarily being replicated by lambs. This graph of Wagga Wagga sales, the country’s largest selling centre shows the difference between the price per head paid by restockers on AuctionsPlus for young store lambs by season (the bars) and the prices received after fattening (allow for a lag of up to six months between the bar graphs and the line graph for time taken to fatten). Margins are averaging $34 which is pretty skinny.

As lamb seems to be waning, the price of mutton and lamb is converging. Restocking is driving the price of breeding ewes and then there’s the Asian markets, notably China who continues to demand mutton as a cheaper from of alternative protein.

The one major growth market for Australian lamb is the US, where demand remains strong, particularly from retail channels, as well as from restaurants. In contrast, lamb exports fell in other major markets, especially China, as well as the Middle East, where the COVID-19 impact was particularly disruptive.

Sheep EID Tags

Victoria is the only state mandating EID tags for sheep and goats, and readability levels are at 99% in the saleyards. Since becoming compulsory in 2017, 40 million tags and almost 39 million sheep and goat movements have been recorded on the NLIS (National Livestock Inventory Scheme). Other states have cited cost of the tags and technology as a barrier; in Victoria it’s 76c per sheep and goat which is Government subsidised.

Traceability makes market access easier, promotes food safety and biosecurity, plus it limits the impact of disease outbreak and animal chemical residue. There’s a lot to like about it.

Like the rest of Aus, NZ doesn’t have a compulsory system for sheep and goats and in case of an outbreak it would take months to back track through processors, stock yards, truckie dockets and farmers diaries to find the source; meanwhile stock movements would be seriously impaired or halted altogether.
Somebody’s not thinking, if they’re of the view the cost is too high, consider that foot and mouth is the Covid of the animal kingdom; consider also the marketing advantages of true traceability. And given AU and NZ promote sustainable practices and food safety it shouldn’t require much debate, just a small matter of who should pay.

Grains

Corn
Not a good time to grow corn – the slowing of snack food sales through Covid has halved the price of gritting (ground) corn with thousands of tonnes not grown under contract are trying to find a home. Neither are buyers looking for feed or prime quality corn with one commentator saying that if the price isn’t $350/t farmers won’t plant it. Prices around Dubbo are $250/t compared to $520/t last year.

Wheat and sorghum are more cost effective in stockfeed and corn, pigs and chicken are not good bedfellows as it causes the fat to yellow (new fun fact).

Wheat
We already know it’s a boomer of a time for grains so I won’t labour the point. Wheat demand is very strong lead by pig numbers coming back in China along with strong demand from the Phillipines, Vietnam, Indonesia and Thailand. It’s predominantly the feed grain markets pushing the price along with a corresponding shortage of corn in the US (funnily enough given the comments above) and high temperatures in the US affecting yields along with cool temperatures in Russia, and don’t forget their export tax of 50 euros per tonne to their own exports to keep wheat at home to prevent food inflation domestically. This will continue till June 30.

Barley

Barley too, having been stung with the 80% tariff from China, has experienced significant demand from Thailand and Vietnam along with Saudi Arabia. Sights are on hitting 5.5 million tonne of barley in ’21.
Low Carbon Barley – some barley growers in WA are working with Heineken to track their carbon footprint with the goal being to reduce it. In March the EU voted to slap carbon tariffs on imports from countries it deemed were not doing enough to combat climate change. Japan and the US have indicated they could follow a similar path so with the view to the future these farmers see this move as smart business. The goal is for growers to reduce their carbon footprint, while Heineken can boast low-carbon credentials right across its supply chain, from paddock to pint (is that cheesy?).

Note: The AU govt has yet to sign up to a net zero carbon emission goal by 2050.

Canola

The graph tells the story with huge recent rises punching through $700 per tonne. Canada, the highest producer at 20% of the world’s total and 74% of its export volume, is having to import Ukrainian canola to meet domestic demand amid concern re the size of their crop. The EU crop is also predicted to be down so mix in the rise in demand from China and the EU (where canola is used for biodiesel) and it’s good times for Australia. Prices are not expected to remain as high as they are right now but the benchmark price is $400/t – well below where they are now.

Dairy

Prices
Dairy companies Bega, Burra and Saputo are sitting at $6.50/kg MS with Fonterra at $6.53/kgMS as their end of season estimates. This “seems cautious” though given Chinese demand was up by 31% July to Dec and they’re predicting GDP growth of 8.6% over the next 12 months (China takes 30% of AU’s dairy). Rabo is forecasting $6.65c per kgMS for YE 20/21. Export markets are expected to stay strong over the next 12 months.
And nationally the “average” dairy farmer is predicted to make around $190k for 2020/21 up slightly on last year.

2021/22 – under the Mandatory Dairy Code of Conduct, all dairy processors are required to announce their new season price by June 1st. Bulla is first out of the blocks with it’s price range $6.40 – $6.90 per kgMS; that’s 10-20c more than the opening price last year.

Fresh Milk – Farm Power, ex ag Minister Peter Nixon and businessman John Dahlsen all back a plan to subsidise farmers $40c a litre for fresh milk to keep the industry viable. We’ve also had the Queensland governor calling for an inquiry into the actions of the supermarkets months ago – they account for 71% of the milk sales in AU.
There’s also research supporting the fact that consumers are willing to pay more for fresh milk but when milk is cheaper than bottled water and 25% of farmers (in QLD) leave the industry in 5 years there’s something wrong. And I checked the the prices:

  • Woolworths AU @ $1.20-$1.30 per litre for standard milk and $3.60 per litre for a standard Pump water bottle (reducing to 70c/litre for a pack of 20
  • Woolworths NZ (trading as Countdown) @ $1.77 per litre for standard milk and 35c per litre for a Pump bottle.

Fodder Crops

China has no sanctions on fodder crop exports from AU but major AU exporters have not had their China accreditations renewed (due in Feb) which amounts to the same thing. China isn’t the biggest export market but they are significant and with lower demand locally expect prices to fall.

Wool

Last year was a kick in the guts for wool producers with prices falling 50%, hard to swallow but now we’re seeing them return to around 1300c/kg after hitting a low of 850 cents Sept 2020. Volumes are down however partially through a small national sheep flock and some farmers holding supplies back in the belief prices are on the rise.
The market recently hit its highest level in 12 months with the AWEX Eastern Market Indictor finishing at 1342 cents/kg. WA reached 1375c/kg. The sheep numbers shorn this season fell 4.5% to 65.5m.

Machinery Sales

Tractor & Machinery Assn (TAMA) report shows March ’21 tractor sales up 64% on Mar ’20 and 12 month sales >15,000 up a massive 40% on the previous year.

For the March result all categories enjoyed huge rises:

  • under 40hp (30kw) range was up 61% for the month to be 68% ahead YTD; 40 to 100hp (30-75kw) was up 70% in the month (68% YTD); 100 to 200hp (75-150kw) was up 58%. (53% YTD); 200 hp (150kw) plus was up 72% and is now 92% ahead for the year.

March sales were strong in all States:

  • NSW up 98% on Mar ’20 and 105% for YTD; Vic up 47% and 45% ahead for the year; QLD up 64% and 63% YTD; WA up 70% and 72% YTD; SA 14% increase for the month and TAS 65% ahead for the month.

These are big numbers and reflect pent up demand, the tax write down and low interest rates. They also show confidence in the industry.

Wine

It looks like there’s been some real scrambling after China hit AU wine with up to 212% in tariffs which meant that during the 4 months to 31 March, the value of exports to China tanked 96% from $325m the previous year to just $12m. Britain has overtaken the US to become the second largest export market and gains have been made in other countries. Wine Australia reports that exports from the 2400 wine producers were down 4 per cent to $2.77 billion for the 12 months ended March 31.

An incredible result in the face of adversity though regrettably it doesn’t tell the whole story. Despite the tariff, China still remained the biggest market for the year given their purchases made prior to the tariff being implemented, so there may yet be some more scrambling to be done if the China situation isn’t resolved. China sales also yield the highest margins for AU wine.

Tracta | Champions of Agribusiness - Rural Specialist

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