Mecardo Analysis - ABARES: An East Side Story
- By: "Farm Tender" News
- Cattle News
- Sep 11, 2018
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By Andrew Whitelaw | Source: ABARES, Mecardo.
Early this morning ABARES released their quarterly crop report. It wouldn’t surprise anyone to see that the forecasts been chopped. The headline numbers; wheat -2.8mmt (13%), barley 870kmt (-9%) and canola -306kmt (-10%) since the June update. In this update, we will delve into the numbers.
Wheat: The headline number for wheat (19.1mmt) is not wholly that important at present. Although this is well below the 10-year average (24.9mmt), we have had worse national crops in 02/03, 06/07 & 07/08 in this century. What is far more important is the composition of production. The most important areas in the country for domestic consumption are NSW & QLD and both these regions are set to produce heavily reduced crops (Figure 1). The most glaring figure from the entire dataset is the fact that NSW is now projected to only produce 40% of the average since 2000. Victoria is set to produce just shy of the average (-5%) and producers will find strong returns this year due to close to average yields and well above average pricing.
The national wheat crop has been assisted by a strong increase in forecasts for WA, with the state expected to produce 9.6mmt. The state is likely to produce >50% of the nation’s entire wheat crop, only the third time that this has occurred since 1856 (see chart). The lack of production in eastern Australia will lead to continued transshipments from WA.
Barley: Cleary during a drought all crops are impacted. This trend is continued with barley. The prognosis for the barley crop in NSW is 49% lower than the average since the start of the century, however, Victoria is holding its own, down only 4% compared to average, albeit substantially down on the past two years.
Canola: The canola crop on a national basis is set to drop 15% against the national average to sit at 2.8mmt. This would be a solid number if this was on the east coast, however, this year WA is set to represent 59% of the national crop, the highest level since 08/09 (Figure 3). Close to 100% of the domestic demand in Australia is on the east coast and with current production levels, there is going to be a fight to accumulate (especially in NSW).
Key points
* Australian production overall is holding up well due to the fantastic growing season in most of WA.
* The east coast is likely to have strong prices for all crops for the next 12-18 months.
* There is likely to be a severe lack of canola available for the domestic crush market in eastern Australia.
What does this mean?
The ABARES report doesn’t really surprise. Examining the numbers, however, does provide a moment to reflect on the structure of the market for the coming year. It is going to be an east side story, with severe shortages of supply placing a floor in any potential price fall.
We must be clear however that we are still two months away from the start of harvest. It would not be a surprise to see production fall further due to frost damage and baling for hay.
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