| Commodity outlook and financial performance of agriculture in northern Queensland |
| Daniel Mackinnon, Paul Phillips, Peter Martin and commodity analysts |
 |
| This paper presents ABARE’s current commodity outlook and the recent financial performance of some key agricultural industries in northern Queensland, highlighting the performance of beef, sugar and horticultural crop producers. The northern Queensland region as covered in this paper is outlined in map 1. Major regional centres include Innisfail, Townsville, Charters Towers, Cooktown, Weipa and Normanton. |
| Northern Queensland regional profile |
| Beef production makes a significant contribution to the value of agricultural production in northern Queensland (figure a). Australian Bureau of Statistics (ABS) data indicates beef cattle accounted for around 37 per cent ($734 million) of the region’s $1.96 billion total value of agricultural production in 2004-05, while sugar cane contributed around 29 per cent ($574 million), making it the highest value crop. Fruit production accounted for 21 per cent of the value of production, or $406 million, of which bananas contributed $289 million and mangoes almost $72 million. Vegetable production accounted for a further 5 per cent, or $103 million. |
|
| Number and type of farms |
| In 2004-05, there were 5059 farm businesses in the northern Queensland region with an estimated value of agricultural operations (EVAO) of $5000 or more (table 1). Sugar cane farms accounted for around 42 per cent of farms in northern Queensland, while beef cattle farms accounted for a further 28 per cent and fruit producing farms 16 per cent. Around 2 per cent of farms were classified as grain growers. Farms are classified based on the activity generating the highest value of agricultural production for that farm. Many farms in northern Queensland are small to medium in size. In 2005-06, slightly fewer than half of all farms had an estimated value of operations less than $150 000 as measured by the ABS (figure b). Around a quarter of farms had an EVAO between $150 000 and $350 000 and around 7 per cent or 390 farms had an EVAO of more than $1 million. |
|
| Employment |
| Recent ABS data indicates 256 000 people are currently employed in northern Queensland. The retail trade sector is the largest employer, accounting for around 14 per cent of the total workforce, or 35 900 people (figure c). Construction is the next largest employer, accounting for 12 per cent, or 31 000 people, followed by health and community services (10 per cent or 24 600), property and business services (9 per cent or 22 600) and manufacturing (8 per cent or 19 700). Agriculture, forestry and fishing accounted for 4 per cent of the workforce (10 600) and mining 3.5 per cent (9000). |
|
|||||||
Northern Queensland |
Queensland |
||||||
|
|||||||
no. |
% |
no. |
% |
||||
|
|||||||
| Sugar Cane | 2 127 |
42 |
4 054 |
15 |
|||
| Beef Cattle | 1 402 |
28 |
12 136 |
45 |
|||
| Fruit | 820 |
16 |
1 793 |
7 |
|||
| Vegetable | 218 |
4 |
1 282 |
5 |
|||
| Dairy | 136 |
3 |
956 |
4 |
|||
| Other crops | 90 |
2 |
502 |
2 |
|||
| Grain | 78 |
2 |
1 417 |
5 |
|||
| Other | 188 |
4 |
4 816 |
18 |
|||
|
|||||||
| All Industries | 5 059 |
100 |
26 955 |
100 |
|||
| a Where the estimated value of agricultural operations is more than $5 000. | |||||||
| Sugar Industry | |
| In March 2007, ABARE conducted a survey of sugar cane growers across Australia on behalf of the Sugar Industry Oversight Group in collaboration with Canegrowers. Data from this survey provides a snapshot of sugar cane farm performance in 2005-06. A follow-up survey of sugar cane farm performance is currently being undertaken for 2006-07. In 2005-06, there were 4824 sugar cane growers in Australia, of which 90 per cent were located in Queensland. Nationally, cane production averaged 8250 tonnes a farm, with Queensland farms averaging 8560 tonnes. However, there was a wide dispersion of farm sizes and sugar cane production around this average. Nearly two-thirds of growers produced less than 7500 tonnes of sugar cane and in aggregate, these farms accounted for around a quarter of Australia’s sugar cane production in 2005-06 (table 2). In contrast, 3 per cent of growers produced more than 30 000 tonnes, which in aggregate accounted for an estimated 22 per cent of national sugar cane production. In 2005-06, the average area of Australian sugar cane farms was around 185 hectares, although half of all sugar cane farms operated less than 106 hectares (table 3). |
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| |
|
|
|
|
|
| Sugar cane is normally grown on a four to five year rotation in Australia with producers harvesting up to 80 per cent of the crop area each year. The growing season required to reach harvest is around 12 months in Queensland but is between 18 and 24 months in New South Wales. The longer season in New South Wales means a lower proportion of the area under cane is harvested each year and results in higher cane yields per hectare. Some of the largest sugar cane growers — in terms of area and quantity of sugar cane produced — were located in the Burdekin, Mackay and Herbert regions of Queensland. The use of irrigation water is also most widespread in these regions, with the majority of crops receiving at least one application of water in 2005-06. In contrast, producers in New South Wales and southern Queensland tend to have smaller farms and use little or no irrigation water. In 2005-06, total cash receipts for sugar cane growers averaged around $281 000 per farm, of which almost 80 per cent was from the sale of sugar cane. Non-sugar related receipts were mainly from the sale of beef cattle and crops such as peanuts, oilseeds (principally soybeans), vegetables and fruit. Farm cash income for sugar cane growers averaged around $66 580 per farm in 2005-06 (table 4). However, an estimated 27 per cent of producers reported negative farm cash incomes. Most farms reporting negative farm cash incomes were smaller sugar cane growers producing less than 7500 tonnes. Nearly two-thirds of sugar cane growers across all regions reported farm business losses in 2005-06. However, the 2005-06 survey results indicate that in all regions, financial performance improved as the scale of sugar cane production increased. For example, in the Burdekin, farms producing less than 15 000 tonnes of sugar cane reported a loss of $40 220 compared with a profit of $22 400 for farms producing 15 000 to 30 000 tonnes and around $357 600 for farms producing more than 30 000 tonnes (table 4). In 2005-06, the average return on capital (excluding capital appreciation) for sugar cane growers is estimated to have been 1.4 per cent. When capital appreciation is taken into account, primarily increases in land values, the average rate of return is estimated at around 7.4 per cent. Large growers (those producing more than 30 000 tonnes) had the highest average rate of return on capital (excluding capital appreciation) at 4.7 per cent, reflecting their ability to generate higher profits per dollar of capital invested than smaller farms. In 2005-06, the cash costs of sugar cane production averaged around $160 800 per farm, ranging from $67 660 for growers producing less than 7500 tonnes of cane to around $1.7 million per farm for growers producing more than 50 000 tonnes of cane. Across all farms, harvesting costs and fertilisers were the largest cost items accounting for nearly half of total sugar cane related production costs in 2005-06. Other major cost items included fuel, repairs and maintenance, interest payments, and hired labour. Overall, the average unit cost of producing sugar is estimated to have been $19 a tonne in 2005-06 (figure d). However, there was considerable variability in the estimated unit cost of production between sugar growing regions and size groups. On average, the lowest cost producers in 2005-06 were located in the Ord River region of Western Australia and the Herbert region of Queensland. Unit production costs are estimated to have been the highest in the Burdekin and Bundaberg regions, averaging around $21 a tonne in 2005-06. The survey results suggest there may be some economies of size in the Australian sugar cane growing industry because estimated average unit costs of production were lower for farms producing higher quantities of sugar cane. The average unit cost of production for the smallest sugar cane growers is estimated to have been around $20 a tonne in 2005-06 (table 5) compared with around $18 a tonne for the largest growers. Data from future surveys will help to confirm these results. |
|
||||||
sugar cane growers |
share of growers |
share of production |
||||
|
||||||
| Quantity of sugar cane produced |
no. |
% |
% |
|||
|
||||||
| Less than 7500 tonnes | 3 130 |
65 |
25 |
|||
| 7500 to 15 000 tonnes | 1 035 |
22 |
27 |
|||
| 15 000 to 22 500 tonnes | 349 |
7 |
16 |
|||
| 22 500 to 30 000 tonnes | 156 |
3 |
10 |
|||
| 30 000 to 50 000 tonnes | 105 |
2 |
10 |
|||
| More than 50 000 tonnes | 49 |
1 |
12 |
|||
| Total | 4 824 |
100 |
100 |
|||
|
|||||||
value below which specified percentage of farms lie |
|||||||
|
|||||||
25% |
50% |
75% |
average |
||||
|
|||||||
| Area operated | ha |
55 |
106 |
200 |
184 |
||
| Area of sugar cane harvested | ha |
30 |
62 |
113 |
87 |
||
| Quantity of sugar cane produced | tonnes |
2800 |
6055 |
10650 |
8251 |
||
|
|||||||
under 15 kt |
15–30 kt |
over 30 kt |
average |
||||
|
|||||||
| Farm cash income | |||||||
| New South Wales | $ |
35 961 |
na |
na |
37 455 |
||
| Far North Queensland | $ |
34 056 |
173 112 |
580 824 |
64 686 |
||
| Herbert | $ |
57 070 |
247 050 |
429 208 |
87 947 |
||
| Burdekin | $ |
12 850 |
94 856 |
580 374 |
68 462 |
||
| Mackay | $ |
56 161 |
191 592 |
341 883 |
86 721 |
||
| Bundaberg | $ |
25 450 |
233 382 |
na |
44 312 |
||
| Southern Queensland | $ |
31 568 |
na |
na |
31 568 |
||
| Ord River | $ |
na |
na |
na |
454 292 |
||
| Australia | $ |
38 672 |
177 801 |
491 901 |
66 579 |
||
|
|||||||
| Farm business profit | |||||||
| New South Wales | $ |
–11 638 |
na |
na |
–10 661 |
||
| Far North Queensland | $ |
–3 665 |
64 375 |
444 422 |
16 377 |
||
| Herbert | $ |
15 140 |
174 087 |
269 297 |
39 795 |
||
| Burdekin | $ |
–40 220 |
22 402 |
357 579 |
–342 |
||
| Mackay | $ |
4 430 |
82 265 |
186 166 |
22 813 |
||
| Bundaberg | $ |
–22 859 |
142 057 |
na |
–8 892 |
||
| Southern Queensland | $ |
–33 613 |
na |
na |
–33 613 |
||
| Ord River | $ |
na |
na |
na |
366 405 |
||
| Australia | $ |
–8 284 |
83 205 |
316 649 |
10 099 |
||
|
|||||||
| Rate of return excl. capital appreciation | |||||||
| New South Wales | % |
–0.4 |
na |
na |
–0.3 |
||
| Far North Queensland | % |
0.3 |
2.5 |
6.4 |
1.6 |
||
| Herbert | % |
2.6 |
7 |
4.9 |
4 |
||
| Burdekin | % |
–0.3 |
2.7 |
4.9 |
1.8 |
||
| Mackay | % |
0.9 |
3.2 |
3.8 |
1.8 |
||
| Bundaberg | % |
–0.8 |
3.4 |
na |
0.3 |
||
| Southern Queensland | % |
–1.0 |
na |
na |
–1.0 |
||
| Ord River | % |
na |
na |
na |
7.1 |
||
| Australia | % |
0.3 |
3.4 |
4.7 |
1.4 |
||
|
|||||||
| Rate of return incl. capital appreciation | |||||||
| New South Wales | % |
2.9 |
na |
na |
3 |
||
| Far North Queensland | % |
1.6 |
2.7 |
11.1 |
3.1 |
||
| Herbert | % |
9.3 |
13.9 |
11.2 |
10.7 |
||
| Burdekin | % |
7.8 |
8 |
6.3 |
7.4 |
||
| Mackay | % |
5 |
8.3 |
33.4 |
9.9 |
||
| Bundaberg | % |
4.2 |
3.6 |
na |
4.8 |
||
| Southern Queensland | % |
21.1 |
na |
na |
21.1 |
||
| Ord River | % |
na |
na |
na |
25 |
||
| Australia | % |
5.5 |
7 |
16.4 |
7.4 |
||
| na Not available because of insufficient sample size. | |||||||
| Broadacre industry |
| Australia |
| Australian broadacre farm financial performance is projected to strengthen in 2007-08, after recording the lowest incomes since 1992-93 in 2006-07. Increased grain and livestock production, combined with higher grain and wool prices and strong prices for beef cattle, sheep and lambs are projected to result in farm cash incomes on broadacre farms nearly doubling in 2007-08, to average around $88 000 per farm (figure e). In addition, total cash costs are projected to be slightly lower for livestock farms as improved seasonal conditions enable reduced expenditure on fodder and agistment. Average farm business profit across Australia is projected to recover by more than the increase in farm cash income in 2007-08 (table 6). This largely reflects an increase in the value of trading stocks as producers increase livestock numbers and replenish on-farm inventories of fodder and grain. |
|
| Queensland |
| Broadacre farm incomes in Queensland improved modestly in 2003-04 and 2004-05 from the drought affected incomes of 2002-03. Increased beef cattle sales and higher beef prices contributed to a sharp increase in farm incomes in 2005-06. However, the widespread failure of crops across Queensland in 2006-07 and lower saleyard prices for cattle resulted in average incomes falling by more than 50 per cent to around $47 000. Farm income is projected to improve in 2007-08 as improved seasonal conditions result in increased receipts from both winter and summer crops, particularly sorghum, in combination with higher wool and sheep receipts and a reduction in fodder and agistment costs. In 2007-08, beef cattle receipts are forecast to fall as farms reduce cattle turnoff and rebuild beef cattle numbers. Reduced cattle turnoff and an increase in the number of calves is projected to result in higher numbers of beef cattle. In combination with increased grain stocks, this is projected to lead to higher values of on-farm inventories and improved farm business profit. |
| Beef industry |
| Queensland and northern Queensland |
| In 2006-07, farm cash incomes of beef specialist producers (defined as farms with the majority of their income derived from beef cattle sales) fell. Fewer beef cattle were sold in 2007 as producers began rebuilding herd numbers following high turnoff during 2006. In 2006-07, receipts from beef cattle fell by around 15 per cent while cash costs remained relatively high and farm cash income for Queensland beef industry farms halved, to average around $60 000 per farm (figure f). In 2007-08, farm cash income is forecast to improve by almost 30 per cent to around $78 000 per farm. Total cash receipts are projected to fall slightly as cattle turnoff is further reduced, but cash costs are projected to fall by more as beef cattle purchases slow. Beef cattle numbers are projected to rise again in 2007-08 reflecting improved seasonal conditions. Northern Queensland experienced dry conditions early in 2006-07, but above average rainfall during the summer months boosted pasture growth and water availability. Producers began rebuilding herd numbers and the decline in cattle turnoff reduced farm cash income by more than $40 000 compared with 2005-06. Improved seasonal conditions continued into 2007-08, however, cash receipts are forecast to be similar to those in 2006-07. Significant increases in cash costs are forecast to result in lower farm cash income. |
| Vegetable industry |
| There were around 2880 commercial vegetable farms with an EVAO greater than $40 000 in 2005-06. Around a quarter of these were in Queensland. The majority of Australian vegetable growers are small in terms of the total area cropped. The average area sown to vegetable crops on Queensland vegetable farms in 2005-06 was 29ha, compared with an average 36ha for all Australian vegetable farms (table 7). However, the value of production of Queensland farms was higher on average. In 2005-06 cash receipts for Queensland vegetable farms averaged $843 000 compared to the Australian average of around $638 000 per farm (table 8). Around 58 per cent of Queensland farms were estimated to produce only one type of vegetable, with the remaining 42 per cent producing two or more vegetable crops. For Australia, 64 per cent were estimated to produce one crop and 36 per cent two or more (table 9). Potatoes are the major vegetable crop in all states in terms of area sown, value of production, and volume of consumption. In northern Queensland, melon crops including watermelons, rockmelons and honeydew melons, are substantial contributors to the total value of vegetable operations. In 2005-06, farm cash income for Queensland vegetable growers averaged $162 000, slightly more than the national average of $153 000. |
|
||||||
under 15 kt |
15–30 kt |
over 30 kt |
average |
|||
|
||||||
$/t |
$/t |
$/t |
$/t |
|||
| Average sugar cane price | ||||||
| New South Wales | 24 |
na |
na |
24 |
||
| Far North Queensland | 26 |
26 |
28 |
26 |
||
| Herbert | 27 |
26 |
26 |
26 |
||
| Burdekin | 28 |
31 |
29 |
29 |
||
| Mackay | 29 |
29 |
29 |
29 |
||
| Bundaberg | 31 |
30 |
na |
30 |
||
| Southern Queensland | 30 |
na |
na |
30 |
||
| Ord River | na |
na |
na |
34 |
||
|
||||||
| Australia | 27 |
28 |
29 |
28 |
||
|
||||||
| Average sugar cane cash cost of production | ||||||
| New South Wales | 19 |
na |
na |
19 |
||
| Far North Queensland | 18 |
21 |
20 |
19 |
||
| Herbert | 16 |
15 |
16 |
16 |
||
| Burdekin | 25 |
21 |
17 |
21 |
||
| Mackay | 21 |
20 |
19 |
20 |
||
| Bundaberg | 25 |
15 |
na |
21 |
||
| Southern Queensland | 20 |
na |
na |
20 |
||
| Ord River | na |
na |
na |
11 |
||
|
||||||
| Australia | 20 |
19 |
18 |
19 |
||
|
||||||
| Sugar cane gross margin | ||||||
| New South Wales | 4.5 |
na |
na |
4.7 |
||
| Far North Queensland | 7.8 |
4.7 |
8 |
6.9 |
||
| Herbert | 10 |
10.8 |
9.7 |
10.2 |
||
| Burdekin | 2.5 |
9 |
12.2 |
8.1 |
||
| Mackay | 7.1 |
8.5 |
9.7 |
8 |
||
| Bundaberg | 5.2 |
13.6 |
na |
7.6 |
||
| Southern Queensland | 8.3 |
na |
na |
8.3 |
||
| Ord River | na |
na |
na |
22.2 |
||
|
||||||
| Australia | 6.6 |
8.4 |
10.7 |
8.1 |
||
| na Not available because of insufficient sample size. | ||||||
|
|||||||||||
 |
|||||||||||
Queensland |
Australia |
||||||||||
2005-06 |
2006-07 |
2007-08 p |
2005-06 |
2006-07 |
2007-08 p |
||||||
| Physical | |||||||||||
| Area operated at 30 June | ha |
15 823 |
12 178 |
-8 |
9 705 |
6 558 |
6 210 |
-5 |
5 012 |
||
| Area sown to crops | ha |
171 |
161 |
-17 |
209 |
359 |
357 |
-4 |
309 |
||
| Sheep on hand at 30 June | no. |
454 |
386 |
-22 |
474 |
1 445 |
1 318 |
-4 |
1 359 |
||
| Beef cattle on hand at 30 June | no. |
988 |
996 |
-6 |
1 037 |
370 |
356 |
-4 |
358 |
||
| Beef cattle sold | no. |
330 |
293 |
-6 |
289 |
141 |
139 |
-5 |
129 |
||
|
|||||||||||
| Receipts | |||||||||||
| Crops | $ |
46 840 |
43 500 |
-219 |
98 000 |
130 400 |
87 400 |
-77 |
125 000 |
||
| Sheep and lamb sales | $ |
6 670 |
5 000 |
-30 |
6 000 |
41 280 |
36 000 |
-5 |
40 000 |
||
| Wool sales | $ |
9 690 |
11 700 |
-24 |
12 000 |
30 990 |
35 700 |
-5 |
38 000 |
||
| Beef cattle sales | $ |
276 490 |
228 900 |
-7 |
210 000 |
111 210 |
98 200 |
-6 |
90 000 |
||
| Total cash receipts | $ |
410800 |
350400 |
-5 |
360000 |
355610 |
302100 |
-3 |
333000 |
||
|
|||||||||||
| Costs | |||||||||||
| Sheep and lamb purchases | $ |
1 040 |
1 200 |
-33 |
1 000 |
9 010 |
6 300 |
-10 |
4 000 |
||
| Beef cattle purchases | $ |
50 720 |
45 600 |
-15 |
21 000 |
25 300 |
22 000 |
-10 |
12 000 |
||
| Seed | $ |
3 770 |
4 200 |
-13 |
4 000 |
3 520 |
3 800 |
-7 |
3 000 |
||
| Fodder | $ |
29 410 |
32 700 |
-14 |
18 000 |
11 680 |
18 500 |
-7 |
9 000 |
||
| Agistment | $ |
5 440 |
7 100 |
-30 |
2 000 |
1 790 |
3 200 |
-27 |
1 000 |
||
| Fertiliser | $ |
3 640 |
5 500 |
-17 |
6 000 |
26 500 |
23 400 |
-5 |
25 000 |
||
| Sprays | $ |
7 890 |
5 400 |
-11 |
6 000 |
17 620 |
15 500 |
-5 |
16 000 |
||
| Fuel, oil and lubricants | $ |
25 100 |
20 300 |
-5 |
22 000 |
24 060 |
20 600 |
-3 |
21 000 |
||
| Repairs and maintenance | $ |
30 120 |
27 300 |
-5 |
31 000 |
24 990 |
23 700 |
-3 |
25 000 |
||
| Administration expenses | $ |
11 550 |
13 100 |
-12 |
13 000 |
10 370 |
10 400 |
-5 |
10 000 |
||
| Rent and rates | $ |
10 440 |
10 700 |
-8 |
10 000 |
13 600 |
13 700 |
-4 |
13 000 |
||
| Interest payments | $ |
33 610 |
41 600 |
-10 |
48 000 |
25 320 |
32 400 |
-5 |
35 000 |
||
| Hired labour | $ |
15 150 |
15 100 |
-9 |
15 000 |
11 100 |
10 000 |
-6 |
10 000 |
||
| Total cash costs | $ |
305730 |
303100 |
-6 |
253000 |
281370 |
261000 |
-3 |
245000 |
||
|
|||||||||||
| Financial performance | |||||||||||
| Farm cash income | $ |
105 070 |
47 300 |
-23 |
107 000 |
74 240 |
41 100 |
-12 |
88 000 |
||
| Farm business profit | $ |
- 6 250 |
- 7 700 |
-151 |
134 000 |
- 8 190 |
- 52 600 |
-10 |
23 000 |
||
| Rate of return | |||||||||||
| – excl. capital appreciation | % |
0.9 |
0.9 |
-30 |
4 |
0.8 |
-0.4 |
-39 |
2 |
||
| – incl. capital appreciation | % |
10 |
14 |
-11 |
na |
7 |
8 |
-9 |
na |
||
|
|||||||||||
| Farm capital and debt | |||||||||||
| Total capital value | $ |
4 589 260 |
5 347 900 |
-5 |
na |
3 466 940 |
3 713 400 |
-2 |
na |
||
| Total farm debt at 30 June | $ |
494 010 |
596 300 |
-9 |
483 000 |
360 540 |
450 600 |
-4 |
362 000 |
||
|
|||||||||||
| Equity ratio at 30 June | % |
89 |
88 |
-1 |
na |
90 |
88 |
1 |
na |
||
| p Projection based of information collected by telephone survey in November 2007. Note: Figures in parentheses are standard errors expressed as per centages of the estimate provided. |
|||||||||||
|
|||||||
value below which specified percentage of farms lie |
|||||||
|
|||||||
25% |
50% |
75% |
average |
||||
|
|||||||
| Queensland | ha |
4 |
15 |
44 |
29 |
||
| Australia | ha |
4 |
14 |
46 |
36 |
||
|
||||||||
Queensland |
Australia |
|||||||
|
||||||||
| Total cash receipts | $ |
843 280 |
-21 |
638 170 |
-9 |
|||
| Total cash costs | $ |
681 260 |
-22 |
485 210 |
-10 |
|||
| Farm cash income | $ |
162 020 |
-24 |
152 960 |
-12 |
|||
| Per cent of farms with negative | ||||||||
| cash income | % |
25 |
-26 |
24 |
-16 |
|||
| Buildup in trading stocks | $ |
7 050 |
-95 |
2 030 |
-84 |
|||
| Farm business profit | $ |
71 140 |
-51 |
66 410 |
-26 |
|||
| Rate of return | ||||||||
| – excl. capital appreciation | % |
3.2 |
-33 |
3.2 |
-19 |
|||
| – incl. capital appreciation | % |
9.8 |
-32 |
9.2 |
-16 |
|||
| Total farm debt at 30 June a | $ |
310 880 |
-20 |
224 100 |
-11 |
|||
| Total farm capital at 30 June | $ |
3 567 920 |
-20 |
3 084 000 |
-7 |
|||
|
||||||||
| Farm equity ratio a | % |
88 |
-2 |
92 |
-1 |
|||
| a Average per farm responding to questions on debt. | ||||||||
|
|||||||
1 crop |
2 crops |
3 crops |
more than 3 crops |
||||
|
|||||||
Queensland |
% |
58 |
21 |
12 |
9 |
||
Australia |
% |
64 |
9 |
15 |
12 |
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| Commodities summary |
| ABARE’s assessment of the outlook for world economic growth is provided in ABARE’s quarterly forecasting journal, Australian Commodities. Also included in Australian Commodities are market forecasts and detailed discussions for major Australian agricultural, mineral and energy commodities. The forecast summaries presented here for a number of the commodities important to this region are based on information in the March 2008 issue of Australian Commodities, which is included in delegate satchels. |
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| Seasonal conditions update |
| The Australian Bureau of Meteorology in its seasonal rainfall outlook for the May to July period (23 April 2008), indicates there is a moderate to strong shift in the odds favouring a wetter than normal season through southern Queensland and northern New South Wales. Over northwest and southern Queensland and far north New South Wales, the chances of exceeding median rainfall from May to July are between 60 and 70 per cent. In far north Queensland, the chance of exceeding median rainfall is around 50 to 55 per cent and over the rest of the country the chance is 45 to 60 per cent. The Bureau also stated that the La Niña event in the Pacific Basin is weakening. Computer models indicate a return to neutral conditions over the May to July period. La Niña events typically bring wetter than normal conditions across much of the eastern half of Australia. |
| Sugar |
| The world indicator price for sugar (Intercontinental Commodities Exchange no. 11 spot, fob Caribbean) is estimated to average US12.1 cents a pound in 2008-09, a 7 per cent decrease on the average for 2007-08. In 2007-08 sugar prices have been buoyed by strong demand for sugar cane and molasses as feedstocks for ethanol production and the prospects of further cuts in sugar beet production in the European Union. The introduction of a range of market support policies in India, including export and storage subsidies, have the potential to depress world sugar prices, but do not appear to be having an effect so far. Higher global prices for sugar will lead to improved returns for Australian producers. However, Australian producers will not receive the full benefits of the increase in world prices mainly because of an assumed appreciation of the Australian dollar in 2007-08.The average price received by Australian cane growers for 2007-08 sugar cane is forecast to be similar to that for 2006-07. | Heavy rains in the main sugar cane producing regions of Queensland in early 2008 have generally boosted prospects for Australian sugar cane production in 2007-08, despite some isolated flood damage to cane crops. Australian sugar production is forecast to recover to around 4.85 million tonnes (raw sugar terms) in 2007-08, 3 per cent higher than in 2006-07. Increased production is despite a reduction of 3 per cent in the area harvested. Heavy rain is also expected to lead to increased production in 2008-09 as irrigation dams are replenished and irrigation aquifers recharged. |
| Beef |
| The Australian weighted saleyard price of beef is forecast to increase by 7 per cent in 2008-09, to average 315 cents a kilogram. Underpinning the rise in prices will be a decline in numbers of cattle turned off for slaughter as producers move to rebuild herds. The extent of the price increase is expected to be moderated by weaker demand for Australian beef in Japan and Korea as competition from the United States increases, particularly toward the second half of the year. Reflecting increased retention of female cattle for breeding, total slaughterings are forecast to fall by 2 per cent to 8.6 million in 2008-09. As a result, beef production is also forecast to decline by 2 per cent in 2008-09, to 2.1 million tonnes. Total beef exports are forecast to fall to 880 000 tonnes in 2008-09 as a result of lower production and an expected increase in competition from US beef in Japan and Korea. Exports to Japan in 2008-09 are forecast to fall by 6 per cent, while exports to Korea are forecast to fall by 19 per cent. Exports of live cattle are forecast to increase in 2008-09 to 700 000 head, despite a forecast rise in prices reflecting an expected increase in demand. In the medium term, the number of cattle exported live is projected to rise, driven by solid demand in south east Asian markets, a projected fall in cattle prices and an assumed weaker Australian dollar. |
| Dairy |
| World prices for major dairy products rose sharply in 2007-08 and remained relatively high in the first two months of 2008. In 2007-08, world prices for cheese are forecast to be up by 70 per cent, skim milk powder prices up by 40 per cent and butter prices up by 95 per cent. In 2008-09 world prices for most dairy products are forecast to decline as production and exports rise in response to recent higher world prices. In 2008-09 and 2009-10, world dairy production is forecast to increase at a relatively slow rate. Production in the major dairy exporting areas of the European Union, New Zealand and Australia is forecast to grow relatively slowly. This is a result of changes to production incentives under the Common Agricultural Policy (CAP) in the European Union, higher feed prices and lead times in herd-building in New Zealand and recovery from recent drought conditions and associated irrigation water supply constraints in Australia. Global demand for dairy products remains relatively strong, particularly in developing countries in Asia. Demand is also expected to be strong in developed regions such as the European Union. The ability of Australian dairy farmers to recover quickly from drought will depend largely on the financial situation of individual farmers, the availability of irrigation water and the ability of farmers to rebuild milking cow numbers. While good rains in late 2007 and early 2008 have been helpful, uncertainty remains about the possibility and timing of increased allocations of irrigation water in the southern Murray-Darling Basin and the availability and price of fodder. Australian milk production is estimated to have fallen by more than 5 per cent in 2007-08, to around 9.1 billion litres. In 2008-09, Australian milk production is forecast to begin to recover, rising by almost 2 per cent to around 9.25 billion litres. After averaging around 45c a litre in 2007-08, Australian farm-gate milk prices are forecast to rise by a further 20 per cent to 54c a litre in 2008-09. The relatively high forecast farm-gate milk prices reflect the ability of the dairy industry to benefit from strong world prices for dairy products. |
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