AUSTRALIA’S RECORD GRAIN PRICES – ARE THEY SUSTAINABLE

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AUSTRALIA’S RECORD GRAIN PRICES – ARE THEY SUSTAINABLE

There is no doubt that Australia’s agricultural industry is booming, with Australian farmers expected to reap considerable profits and increased farming incomes. The upward market which commenced in Spring of 2020, took many farmers by surprise, with many experts predicting unfavourable markets due to trade tensions with China, in addition to the effects of the global Covid-19 pandemic. 

Despite the potential market challenges, both the grain market and grain trade in Australia has soared, with a gross increase of 60% on last year, according to figures released by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). But with global grain prices reaching 7-year high’s, and strong grain yields predicted, are the current record grain prices currently seem in Australia sustainable in the coming years? We take a look at the likelihood and expert predictions of Australia’s grain trade for 2021-2022. 

Winter crops values exceed records

The winter grain crop of 2020-2021 was only second to the phenomenal crop seen in 2016-2017, with grain yields far exceeding experts expectations, with crop production projected to be in the vicinity of 51.5 million tonnes. Only the 2016-2017 crop exceeds this figure with a record of 56.7 million tonnes. With favourable weather conditions attributed to the success of the crop, with Australian grain producers and grain traders certainly consider themselves extremely fortunate. Additionally, with increased grain trade and grain prices comes increased farm cash flow, with many grain producers rebounding strongly, after years of drought.

With wheat production being Australia’s primary agricultural crop, grain producers bring in approximately $6 billion each year in export earnings, with Australia being one of the four largest grain exporters in the world. Grain producers contribute significantly to the Australian economy. 

On the back of the successful 2020-2021 grain crop, many grain producers have hedged their bets and planted large acreages, buoyed by 7-year high grain prices and solid weather forecasts. This has led to an increase in the demand for agricultural machinery such as seeders and products such as fertilisers, leading to a steady market across the board.  

But are the record grain yields and high grain trade prices predicted to continue? According to the Dr Greenville of the Australian Bureau of Agricultural and Resource Economics and Sciences, no, with experts predicting a fall for the 2021-2022 year. 

Dr Greenville predicts that the 2021-2022 gross value of crop production is expected to fall around $33 billion from the highs of 2020-2021. Dr Greenville stated, “prospects are positive for the next winter crop which has seen a record high area planted, but it’s very unlikely to see two record years back-to-back”. 

Dr Greenville and the ABARES’s suggestions stem from predictions and estimates that the world wheat price is expected to fall, due to increased supply levels and a decreased demand for feed wheat, due to an increase in corm production. The ABARES also basis its predictions on the predicted success of other grain markets, such as in Argentina and the European Union, where higher production is estimated for the 2021-2022 year. 

Future challenges for the Australian Grain Trade 

There are also a number of factors that will affect the sustainability of Australia’s grain trade for the 2021-2022 year. Other than the weather, which in terms of long term forecasting looks positive for grain producers, two of the other most influential factors currently facing Australian grain growers being the effect of the mouse plague on grain stocks and grain yields, which is currently affecting several Australian states, in addition to the effects of the global Covid-19 pandemic on both the Australian and global markets. 

In terms of the Covid-19 pandemic, which began in the Spring of 2019, the initial picture for the industry looked dismal. However, as the results of the 2020-2012 winter crop indicate, Australia’s farmers not only benefited, but the industry thrived, despite the challenges of the pandemic. In addition to surging grain trade prices, and heavy grain yields, property prices, including agricultural land prices, also increased as a result of the pandemic, meaning that Australian farmers had more funds in their pockets than they have seen for a number of years. 

The mouse plague, however, is certainly an area of great concern for grain producers for the 2021-2022 grain harvest season and beyond. With the mouse plague currently affecting grain growing areas across several states including, New South Wales, Victoria, South Australia and Queensland, with many farmers reporting contamination of both crops and grain storage, forcing many to burn crops, or spending considerable funds on baiting. With the winter period, generally a time that halts breeding cycles of these pests, should survival rates remain high, the potential spread of the plague to other regions, more likely in the warmer months of spring and summer, which could see greater losses across the sector. 

So, are Australia’s record grain prices sustainable?

As indicated above, the likelihood of a second record breaking year in a row, for Australia’s grain prices and grain yields, is unlikely, but not impossible. Just as the experts were taken by surprise by the record 2020-2021 results, and given the volatility of the market, which is subject to many influencing factors, anything is possible. 

For farmers in the Riverina, particularly in Mildura and surrounding areas, we encourage all grain producers to make contact with our highly experienced and professional team at Grainwise, who can give you the best chance of ensuring a record breaking 2021-2022 grain yield for your crop. Our team offers effective and easy to manage solutions, linking grain producers with grain buyers to maximise the profitability and efficiency, whilst delivering more marketing options for Australian grain producers. Make the call to the Grainwise team today. 

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