Agricultural Commodities Report

The March 2018 Agricultural commodities Report forecasts a return towards trend for farm production and exports in 2017–18, before steady growth over the next five years.

The gross value of farm production is estimated to have increased at an annual rate of 2 per cent over the past six years to 2017–18. The 5 per cent reduction forecast for 2017–18 follows an exceptional 2016–17.

The price projections for the next five years have been influenced by two key drivers.

Global crop production is trending down from the very high levels of 2016–17, but is expected to be enough to keep stocks high and prices low out to 2022–23, provided no major supply shocks occur.

For livestock, the US beef cycle has moved to a phase of increased production, intensifying competition in Australia’s export markets and keeping beef prices below the recent highs associated with US production bottoming out in 2015–16.

The flat outlook for prices should result in the growth in the value of agricultural production and exports coming mainly from increased volume, underpinned by rising demand as incomes and populations in importing countries grow.

In 2017–18, the value of farm exports is expected to decline by 4 per cent to $47 billion, before growing steadily to reach $50 billion by 2022–23.

Key Issues

Commodity production forecasts

  • The gross value of farm production is forecast to decline by 5 per cent to $59 billion in 2017–18, reflecting an assumed return to average seasonal conditions, before increasing by 3 per cent to $61 billion in 2018–19.
    • The gross value of farm production nevertheless remains high. If realised, the forecast value of farm production in 2018–19 would be around 11 per cent higher than the average of $55 billion over the five years to 2016–17.
  • The gross value of farm production is forecast to grow steadily over the outlook period to around $63 billion by 2022–23 (in 2017–18 dollars). Strong demand for livestock and some horticultural products, and improved productivity in cropping, are expected to support growth.
  • The gross value of livestock production is forecast to increase by around 3 per cent to $29.6 billion in 2018–19, following a forecast increase of 2 per cent in 2017–18.
    • The value of lamb, wool and dairy production is forecast to contribute strongly to growth in the value of livestock production in 2018–19 (as in 2017–18), driven by strong export demand (particularly from China).
    • The value of beef and veal production is forecast to fall slightly, as a decline in export prices offsets an increase in the volume of beef produced. Despite the fall in price, returns are well above the historical average and supportive of farm profitability.
  • The gross value of crop production is forecast to increase by 3 per cent to $31 billion in 2018–19, after a forecast decline of 11 per cent in 2017–18.
    • The decline in 2017–18 follows record production of wheat, barley and canola in 2016–17 due to very favourable seasonal conditions during winter and spring.
    • In 2018–19 the value of wheat, coarse grains and canola production is forecast to underpin growth in the value of total crop production. Wheat yields are assumed to improve (and to be around trend) following the frosts, above average temperatures and dry conditions during the winter of 2017. Area planted to coarse grains is forecast to increase due to strong global demand for feed and rotational constraints to planting pulses. Canola production is expected to increase as prices become comparatively favourable to the low coarse grain and falling pulse prices.

Commodity export forecasts

  • Export earnings from farm commodities are forecast to be $48.5 billion in 2018–19, slightly higher than the forecast $47 billion in 2017–18.
  • Export earnings for fisheries products are forecast to increase by 1 per cent in 2018–19 to $1.5 billion, after increasing by a forecast 5 per cent in 2017–18.
  • In 2018–19 export earnings are forecast to rise for canola (22 per cent), cotton (17 per cent), barley (12 per cent), lamb (9 per cent), wool (7 per cent), wheat (6 per cent), rock lobster (4 per cent) and live feeder/slaughter cattle (1 per cent).
    • Forecast higher prices are a strong contributor to growth in export earnings. In Australian dollar terms, export prices of cotton (11 per cent), wheat (9 per cent), wool (4 per cent), barley (4 per cent), mutton (4 per cent), rock lobster (3 per cent), lamb (2 per cent) and cheese (1 per cent) are forecast to increase in 2018–19.
  • Export earnings are forecast to decline in 2018–19 for chickpeas (54 per cent), sugar (11 per cent) and wine (2 per cent). Export earnings for beef and veal, cheese and mutton are forecast to be unchanged.
    • The decline in export earnings for these commodities is driven by a fall in export prices. Prices for chickpeas (27 per cent), sugar (11 per cent) and wine (2 per cent) are forecast to fall due to increasing global supply and competition. Prices for beef and veal (3 per cent), live feeder/slaughter cattle (3 per cent) and canola (1 per cent) are also forecast to decline.
  • In 2022–23 the value of farm exports is projected to be around $49.6 billion (in 2017–18 dollars), 8 per cent higher than the average of $46 billion over the five years to 2016–17 in real terms.
    • The value of crop exports is projected to be $25.2 billion in 2022–23 (in 2017–18 dollars), 2.4 per cent higher than the average of $24.6 billion over the five years to 2016–17 in real terms. The value of livestock exports is projected to be $24.4 billion in 2022–23 (in 2017–18 dollars), 15 per cent higher than the average of $21 billion over the five years to 2016–17 in real terms.

Commodity forecasts assumptions

Forecasts of commodity production and exports are based on global and domestic demand and supply assumptions.

  • On the demand side, stronger world economic growth will translate to higher per person incomes in most of Australia’s export markets, supporting stronger demand.
    • World economic growth is assumed to be 3.7 per cent in 2018 and 2019. From 2020 to 2023 economic growth is assumed to average 3.6 per cent.
    • Economic growth in Australia is assumed to be 3 per cent in 2018–19 and over the medium term to 2022–23.
    • The Australian dollar is assumed to average US76 cents in 2018–19, slightly lower than the forecast average of US78 cents in 2017–18. It is assumed to depreciate further to US74 cents in 2019–20 and remain at that level over the outlook period.
  • On the supply side, agricultural production is assumed to be consistent with average seasonal conditions in Australia and globally.
    • Seasonal conditions have significant implications for crop yields and livestock production cycles.

Uncertainties that could affect agricultural commodity production and export growth include supply shocks in Australia or international markets (such as natural disasters, drought and disease outbreaks) or unexpected economic events that affect trade and economic growth.

Agricultural issues articles

Farm performance: broadacre and dairy farms

  • In 2017–18 farm cash income for broadacre farms nationally is projected to average $191,000 per farm. This is a small decline from the average of $212,600 recorded in 2016–17, which was the highest farm cash income recorded over the past 20 years.
  • Lower farm cash income in 2017–18 is the result of reduced winter grain production in most regions and lower prices for beef cattle, but is partly offset by higher prices for wool, sheep and lamb.
  • In 2017–18 higher wool, sheep and lamb prices are projected to result in farm cash income for sheep industry farms increasing to average $170,000, the highest farm cash income recorded in the past 20 years.
  • Farm cash income for dairy farms is projected to increase by 53 per cent nationally to an average of $137,000 per farm in 2017–18, reflecting higher milk prices and increased milk production.

To read the full article, go to page 139 in the report

Disaggregating farm performance statistics by size

From 2014–15 to 2016–17:

  • The largest 10 per cent of broadacre farms produced 47 per cent of total output and the smallest 50 per cent of farms produced 12 per cent of total output.
  • The average rate of return, including capital appreciation, generated by the largest 10 per cent of broadacre farms was 9.4 per cent and the smallest 10 per cent generated average returns of –0.3 per cent.
  • The largest 10 per cent of broadacre farms had the lowest average equity ratio of all farms (80 per cent) and the second-smallest 10 per cent of farms had the highest average equity ratio (98 per cent).

To read the full article, go to page 199 in the report

Exploring Australia’s comparative advantage for exporting fresh produce

  • The value of Australia's fruit and nut exports to its top five export destinations more than doubled in the six years to 2016‒17, with the value of vegetable exports up 50 per cent.
  • Global import demand for fresh produce has been growing strongly and this is expected to continue.
  • Australia is facing strong competition in fresh produce export markets from a multitude of competitors, including Chile, New Zealand, Peru and South Africa for fruit; South Africa and the United States for nuts; and China for vegetables.
  • Australia's institutional and policy environment has generally supported the development of export-oriented horticultural industries, with ongoing reform to industry-specific regulations.
  • Renewed technology investment would help offset the competitive disadvantage of Australia’s high labour costs and secure productivity gains.

To read the full article, go to page 176 in the report

Agricultural issues notes

Peru FTA

  • Australia and Peru concluded the Peru–Australia Free Trade Agreement (PAFTA) on 10 November 2017 and signed it on 12 February 2018. Peru is a new market for Australian agricultural exporters. In 2016–17 Australia's agricultural exports to Peru were valued at $4.1 million.
  • Key outcomes of PAFTA include guaranteed duty-free quotas for Australian dairy, sugar, grain sorghum and rice. Peru’s tariffs on imported beef will be eliminated within five years of PAFTA entering into force.

To read the full note, go to page 18 in the report

Recent changes to China’s grains policy

  • The Chinese Government recently announced several changes to its grain policies. China is a major producer, consumer and importer of coarse grains. Changes to China’s grain policies can affect international grain prices.
  • The policy changes included a small revision of the country’s wheat minimum purchase price, the introduction of an ethanol blend mandate in motor fuel and an exemption from value-added tax for importers of corn-based dried distillers grains with solubles. The latter two changes may place downward pressure on demand for imported feed grains from Australia.

To read the full note, go to page 50 in the report

Market diversity for Australian wine

  • Heavy reliance on a single export market presents a systemic risk for Australian agricultural industries, including the wine industry.
  • Recent growth of the Chinese and Hong Kong wine markets represents a valuable diversification opportunity for the Australian wine industry. The United Arab Emirates, Taiwan, the Republic of Korea and the Philippines have also emerged as important destinations for Australian wine.

To read the full note, go to page 91 in the report

Seasonal conditions in Australia

  • Rainfall at the start of summer 2017–18 was well above average in Western Australia and parts of south-eastern Australia. Since then, above average rainfall has been recorded across western and northern Australia, but prolonged high temperatures and drier than normal conditions have prevailed across eastern Australia. These conditions have been unfavourable for soil moisture levels and on-farm water supplies.
  • The Bureau of Meteorology’s mid-month climate outlook for March to May 2018 indicates a lower than normal chance of exceeding the median rainfall across large areas of central Australia, including parts of Western Australia, southern parts of the Northern Territory, western Queensland, eastern South Australia, and parts of western Victoria.
  • If drier and warmer than normal conditions continue, soil moisture available for crops and pastures may be limited ahead of the winter cropping season.

To read the full note, go to page 20 in the report

Shift from rice to cotton production in NSW Murrumbidgee region

  • Cotton growing has expanded significantly in the NSW Murrumbidgee region from 2010–11 to 2015–16, and has implications for water demand in the southern Murray-Darling basin.
  • ABARES economic modelling suggests the increase in the volume of water used for cotton production is unlikely to have an upward effect on water market prices in this region. This is because the volume of water used for rice and other irrigation activities declined.

To read the full note, go to page 74 in the report

Trends in horticulture activity in the Victorian Murray region

  • An economic model of the southern Murray-Darling basin indicates that water demand in the lower Victorian Murray region increased by more than 200 gigalitres between 2002–03 and 2016–17.
  • The increased water demand was largely driven by an expansion in nut production, particularly of almonds. Water demand is expected to increase further as recent plantings mature.

To read the full note, go to page 85 in the report

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Last reviewed:
05 Apr 2018