Amelia Brown, Emily Dahl, Charlie Qin, Hamish Morton, Cameron Van-Lane and Charley Xia
- High grain and oilseeds prices are expected to continue, reflecting tight global supply.
- Australian winter crop production forecast to reach new record high.
- The value of Australian crop production and exports is forecast to reach a record high.
- November rain interrupted the winter crop harvest, adversely affecting grain quality.
Value of crop production to reach record high in 2021–22
The gross value of crop production is forecast to reach a record $43 billion in 2021–22, driven by record winter crop production and high world grain and oilseed prices. Favourable seasonal conditions across all winter cropping regions, particularly in New South Wales and Western Australia (the two biggest winter crop–producing states) are forecast to result in above average to significantly above average yields. A favourable outlook for increased summer crop production is also contributing to the forecast record. The gross value of all major crop commodities is forecast to reach a record level:
- wheat – $11.5 billion (record high)
- barley – $3.4 billion (record high)
- canola – $5.2 billion (record high)
- cotton – $3.9 billion (record high)
- horticulture – $12.5 billion (second highest on record)
Heavy November rainfall has caused flooding in northern and central west New South Wales resulting in production losses for some producers. Although this is not expected to significantly affect tonnage produced, it will affect the value because of a downgrade in quality. Continued high rainfall in December will cause further damage and more total crop losses if crops cannot be harvested.
In other areas across the eastern states and South Australia, wet conditions during harvest and reduced soil nutrient levels caused by 2 years of high yields could reduce grain and oilseeds quality compared with recent years. The extent of these impacts would differ from paddock-to-paddock, and downgrades of wheat protein levels or improvements in the oil content of canola crops could affect the prices that growers receive.
Despite concerns about a resurgence in mice numbers, increased baiting on farms during winter and spring has reduced mice populations in affected regions, and there have been no reports of significant damage to date. They still remain a risk for summer crops in parts of southern Queensland and northern New South Wales. Farm profits could be reduced by high baiting and cleaning costs if mouse numbers remain elevated during summer.
Value of exports to increase to record in 2021–22
The value of Australia’s crop exports is forecast to increase by 37% in 2021–22 to a record $35 billion. Record high winter crop production and a favourable outlook for summer crops is forecast to result in an increase in the volume of most crop exports. Increased export supply combined with high global prices is driving the record value. Increased supply combined with logistics constraints will mean that a proportion of the current crop will be exported in 2022–23.
With ample export supply in 2021–22, Australia is well placed to meet global demand particularly where relative freight costs provide an advantage. High freight rates mean that Australia's geographical freight advantage is amplified in South-East Asian markets. According to the International Grains Council, on 24 November 2021 indicative ocean bulk freight rates from Australia to Indonesia were US$24 per tonne, compared with US$76 per tonne from Argentina, US$65 per tonne from the Russian Federation, and US$64 per tonne from Ukraine and US$76 from the United States Gulf to Indonesia.
High prices forecast to persist
World grain and oilseed markets have experienced unusual price movements throughout the second half of 2021.Drought in key exporting countries has led to supply shortages, while demand has been strong in major importing countries. As a result, prices have continued to increase above what was anticipated earlier in the year. Other contributing factors in the sustained price surge include significantly increased fuel and fertiliser prices, supply chain disruptions, high freight rates and the potential impact of a consecutive La Niña. China and the Russian Federation, two major global fertiliser producers, are likely to restrict exports to ensure they can meet domestic demand, which will limit global supply and drive up prices.
Australian cotton growers are also expected to benefit from high international prices. Global demand for cotton is forecast to outpace global production, leading to significantly higher prices and a draw down in global stocks.
Wheat prices forecast to increase as world supply of milling wheat tightens
The world wheat indicator price is forecast to average US$330 a tonne in 2021–22, an increase of 23% from the previous year. The Australian Premium White (APW) indicator price is forecast to average A$400 a tonne. Prolonged poor seasonal conditions in Canada, the United States and the Russian Federation has meant that world supply of hard, high-protein milling wheat is significantly lower in 2021–22. Australian high-protein milling wheat is generally considered one of the best in the world and usually competes with Canadian and US wheat exports.
Due to a fall in supply, the prices of high-protein wheats have surged. Australian wheat production is forecast to be the biggest on record, and Australian exports are likely to be competitively priced to meet world demand. However, the wet finish to Australia’s growing season may limit the percentage of high-quality wheat produced. With extremely tight global supply of high-protein wheat, any significant downgrading of the quality profile of the Australian harvest due to wet weather is likely to push world prices for high-protein wheat even higher.
Import demand has increased in some of the world's largest importing countries – especially Iran and Turkey – due to dry weather in the Middle East and North Africa. Wheat purchases have increased despite significantly higher global wheat prices, while world wheat imports are forecast to increase by 4% in 2021–22. Although closing stocks in Australia are forecast to increase, closing stocks in other major exporting countries are forecast to fall to their lowest level since 2007–08.
Wheat production in the Russian Federation (the world's biggest exporter) has fallen by 12% in 2021–22 placing further pressure on global supply. The implementation of an export tax to try to ensure domestic supply and keep domestic prices from rising has contributed to global prices rising further. Dry seasonal conditions during the planting and establishment of the 2022–23 crop has prompted the Russian Federation to indicate that it may also set a new export quota in 2022 if prices continue to rise, raising more concerns about global export supply.
World barley price to rise as stocks fall
World demand for barley is expected to outpace supply, leading to lower stocks and higher prices. The world indicator price for barley is forecast to increase by 13% to US$254 per tonne in 2021–22. High world barley prices are being supported by demand from China.
Australian barley prices are benefiting from high world prices despite Australian barley being excluded from China by anti-dumping and countervailing import tariffs. However, because of the exclusion from the China market, Australian prices are expected to remain below the world indicator price for barley.
World canola prices at record high
Global demand for oilseeds has surged along with world oilseed prices. At the same time, world canola supply has contracted sharply, with production forecast to decrease by 7% to 68 million tonnes in 2021–22. The fall in supply is driven by drought conditions affecting Canada (the world's biggest canola exporter), where production is expected to decrease by 33% to 13 million tonnes in 2021–22. The Canadian canola price is expected to average a record US$799 per tonne in 2021–22, 85% above the 5-year average to 2020–21.
Australian canola typically competes with Canadian canola in overseas markets, and the high prices and low supply of Canadian canola have supported the Australian canola price. The Australian (Kwinana) canola price is forecast to average 45% higher at US$733 per tonne in 2021–22.
Rising vegetable oil prices reflect tight global supply and strong biodiesel demand. Biodiesel demand is supported by the world economic recovery and rising crude oil prices. The easing of pandemic-related restrictions and the global economic recovery have both led to increases in global oil consumption. The September 2021 Resources and Energy Quarterly, released by the Department of Industry, Science, Energy and Resources forecast the Brent crude oil price to remain high in 2022 and average $67 per barrel.
World soybean meal prices have remained at lower levels in recent months. Although Chinese feed demand is expected to continue growing, high global soybean production will put downward pressure on soybean meal prices. Global soybean production is forecast to increase by 5% to a record 385 million tonnes in 2021–22.
Record Australian winter crop production in 2021–22
Total winter crop production is forecast to reach a record of just over 58 million tonnes in 2021–22. If forecast production and prices are realised, this will be Australia's most valuable winter crop ever at over $22 billion. Favourable seasonal conditions in Queensland, New South Wales and Western Australia are expected to result in well above average yields. Conditions in Victoria and South Australia have not been quite as good. Western Australian production is forecast to reach a record high, Queensland and New South Wales production the second highest on record, Victoria the third highest and South Australia the fifth highest winter crop on record.
Australian wheat production is forecast to reach a new record in 2021–22 of around 34.4 million tonnes, which is 3% higher than the previous record set in 2020–21. Australian barley production is forecast to increase marginally to 13.3 million tonnes. Canola production is forecast to reach a new record of 5.7 million tonnes reflecting both an increase in the area sown to canola and high yields particularly in New South Wales and Western Australia.
Summer crop prospects favourable
Australian summer crop production is forecast to increase by 43% to 4.8 million tonnes reflecting a 32% increase in the area sown and above-average yields. Above-average spring rainfall has further replenished water availability for irrigated crops, and the moisture profile for dry area crops is well above average. The outlook for summer rainfall is also positive. In New South Wales, record high November rainfall is likely to have damaged some early sown summer crops and may hamper the completion of planting programs if paddocks remain too wet to access. The delay in harvesting winter crops may also limit the area available to plant summer crops.
Australian sorghum production is forecast to increase by 31% to 2 million tonnes in 2021–22 reflecting both an increase in the area planted and above-average yields.
Australian cotton production is forecast to reach nearly 1.1 million tonnes of lint (or 4.8 million bales) in 2021–22, an increase of 79% from 2020–21. A La Niña event over 2020–21 and a negative Indian Ocean Dipole during the winter months of 2021 have resulted in above average rainfall across much of the cotton-growing regions in the eastern states. High international cotton prices and water availability is estimated to have resulted in 394,000 hectares of irrigated cotton being planted. For dryland cotton, the Australian Bureau of Meteorology expects above-average summer rainfall. However, the promising climate outlook is not all good news. Localised flooding in major production areas of New South Wales during November has prompted growers to replant substantial areas.
Favourable outlook for cotton and sugar
Australian cotton growers are expected to benefit from high international prices and favourable growing conditions in 2021–22. Global demand for cotton is forecast to outpace global production leading to significantly higher prices and a draw down in global stocks. The recent shift towards easing COVID-related restrictions and positive economic growth have improved incomes and lifted consumer confidence, resulting in higher demand for cotton apparel. The Cotlook A price index is forecast to average US110 cents per pound (A322 cents per kilo) for 2021–22, an increase of 33% from 2020‑21.
Australian sugar production is forecast to increase marginally to just under 4.4 million tonnes in 2021–22. The gross value of Australian sugar production is forecast to increase by 13% in 2021–22 to around $1.5 billion. This increase will be driven by higher international prices which are forecast to reach US 20c/lb for 2021-22 up from 16.6c/lb in 2020-21. Prices are expected to remain elevated due to tightening global supply conditions, as production in Brazil (the largest sugar producing nation) has been hampered by drought and frost throughout the year. Additionally, Indian export subsidies have depressed international prices in recent years and their removal in November will make it less profitable for Indian suppliers to export sugar, further reducing global supply and placing upward pressure on global prices. For detailed analysis of sugarcane farm financial performance in 2020–21 to 2021–22, see ABARES latest sugarcane farm survey report.
The outlook for Australian wine more subdued
Global wine production in 2021 is estimated to remain well below average following unfavourable growing conditions in the three largest EU producing countries - Italy, Spain and France. These declines have more than offset record-high production in the southern hemisphere. Despite low production in 2021, the high inventory levels of European and North American exporters carried over from previous vintages will dampen price rises in major import markets.
Global wine trade has been adversely affected by container shortages and rising transportation costs. These factors are expected to reduce the price competitiveness of imported wine compared with domestically produced wine. Additionally, imports of lower-quality wine are more likely to be affected than higher-quality wine.
The 2021 vintage in Australia was the largest since 2006 and is estimated to produce around 1.4 billion litres of wine. This has added to very low inventories carried over from previous vintages. Australian wine exports in 2021 have been adversely affected by the loss of China as a major market. This has significantly reduced exports of bottled red wine, which has been partially re-directed into bulk exports to the United Kingdom.
Supply chain disruptions and high transportation costs are challenging the capacity of the Australian wine industry to diversify into other markets. Container shortages and high sea-freight costs are also affecting the price competitiveness of Australian wine generally, especially in the US, EU and Canadian markets.
Horticulture output to increase despite labour challenges
Wet and mild conditions over late spring in most horticultural regions are expected to boost supplies of summer fruit and vegetables. However, heavy rainfall and flooding in southern Queensland and northern New South Wales have impacted supplies of some produce such as bananas, blueberries and leafy greens.
High supplies of most fruit and vegetables over summer is expected to put downward pressure on farmgate prices, however, price falls will be moderated by the high cost of seasonal labour on farms, as growers look to pass on their costs to consumers. The streamlining of Federal Government programs aimed to increase Pacific labour mobility is expected to help ease some of the labour shortages on farms. From April 2022, the Seasonal Worker Programme and Pacific Labour Scheme will be consolidated, reformed, and replaced by a more flexible and efficient single program. The allowance of quarantine free arrivals for fully vaccinated travellers in some states will also help to increase labour supply.
In 2021–22, labour costs are expected to remain high on horticultural farms and throughout the supply chain, affecting price negotiations and margins. This comes as increasing economic activities from easing of lockdown restrictions and re-opening of state borders will lift demand for workers. The national pool of workers will remain constrained in the short term due to limited overseas arrivals. Heightened competition for overseas and domestic workers in this environment is expected to continue to contribute to farm costs, consistent with other industries in the economy. From 2019–20 to 2020–21, ABARES farm survey data indicates that the total number of workers used by Australian horticulture farms declined around 8% (11,100 workers). The decline in 2020–21 was mainly due to a reduction in the number of seasonal Working Holiday Makers.
Despite the decline in the number of workers used on horticulture farms in 2020–21, overall horticulture output levels are estimated to have remained relatively steady. This is primarily due to an improvement in seasonal growing conditions relative to the previous season. Output was maintained also by changing management practices and by employing more Australians and overseas residents already in Australia.