December 15, 2009


Australia grain production to increase in 2010 despite dry weather



Despite continuing dry weather in some parts of Australia, grain production in 2010 is expected to be up from 2009 level, though it could still be a difficult year for grain farmers.


Falls in production in the eastern states of Queensland and New South Wales, where El Nino-induced dry conditions are likely to see yields fall, will be more than offset by large increases in production in Victoria and South Australia where production is expected to be considerably higher than the previous year, according to the Australia Agribusiness Report Q1 2010.


Still, many grain farmers will find 2010 to be a difficult year. A high global crop combined with a strengthening Australian dollar has put downward pressure on wheat prices in the country.


From September to October 2009, the price of wheat on the Australian Securities Exchange fell from A$250 (US$228.3) per tonne to A$200 (US$182.6) per tonne. In mid-November, prices were still only fractionally above A$200 per tonne. Prices are expected to remain subdued into 2010.


The strong dollar has also been hurting the competitiveness of Australia's livestock product exports. Exports to Japan, the biggest foreign market for Australian beef, were sluggish through the third quarter and into the fourth quarter.


Demand has been hurt both by the increased price owing to the strong dollar as well as the poor state of the Japanese economy. Demand for Australian beef in South Korea has also taken a bit of a battering over the past year. January to August volumes were down by 12% year-on-year, while the value of exports was down by 24% reflecting the lower prices.


Demand for Australian beef in South Korea has been hurt by the resilient demand for higher-priced domestic Hanwoo beef.


The rising dollar also served to cancel out the gain in world dairy prices through the second half of 2009. The world price for whole milk powder rose from US$2,000/tonne at the beginning of August to US$2,850/tonne in October.


Despite the rise, the price paid to farmers for their milk is still very low, often below the cost of production. The low price offered by National Foods to dairy farmers in Tasmania, which produces just over 7% of Australia's milk, led to a dispute with farmers refusing to supply milk at the A$0.20 (US$0.18) per litre price offered.


Farming bodies claimed the price was little over half the cost of production.


In November, negotiations were still underway with National Foods having raised their offer to A$0.33 (US$0.3) per litre. Farmers' representatives were demanding close to A$0.40 (US$0.36) per litre.


The dispute gained considerable national attention and has provoked a federal government investigation into milk pricing. The friction between major dairy producers and farmers is expected to continue as long as milk prices remain around their current low level.