The impact of the growing East Coast drought was dramatically portrayed in the latest crop report from Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), the country’s key agricultural adviser, with regional areas looking at a major hit to activity and income.
The latest “Australian Crop Report” from Abares (http://www.agriculture.gov.au/abares/news/media-releases/2018/winter-crop-production-fall-2018-19) forecasts that winter crop production will drop 12% for 2018-19, to 33.23 million tonnes.
The “winter crop” includes major broadacre farm crops like wheat, barley, canola and oats and is the most important of rural Australia’s production cycles.
That, however, is misleading because it includes the strong results from Western Australia where the winter crop is forecast to rise 12% to 16.32 million tonnes thanks to good winter rains and growing conditions.
The figures for crops in the eastern states, particularly in NSW, Queensland and Victoria show the full extent of the drought’s devastation with NSW hardest hit as winter crop production tipped to slump a massive 46% compared to last year.
The forecast NSW total winter crop for 2018-19, at 3.89 million tonnes, is in fact barely 26% of the size of the massive 14.78 million tonne crop produced by the state in 2010-11.
Winter crop production in Queensland is forecast to be down 38% and Victoria is staring at a 29% drop.
And the situation in Eastern Australia will be worse than these already terrible figures if spring is dry and doesn’t deliver much-needed rain in NSW, Queensland and Victorian cropping regions.
The Bureau of Meterology has already forecast the growing chance of a dry El Nino event in Eastern Australia in Spring through summer.
In its latest report, Abares said that in NSW and Queensland “most cropping regions” received unfavourable seasonal conditions earlier this year, which “curtailed planting late in the planting window and yields are expected to be generally well below average”.
The ABARES report also said: “Winter crop production will be heavily dependent on seasonal conditions during the coming spring. Timely rainfall in early spring will be critical to ongoing crop development in many cropping regions in the eastern states (including South Australia) because of low levels of soil moisture. In Western Australia, favourable spring conditions could boost production beyond that being forecast.”
For investors it underlines just how precarious activity is – Elders shares (it will soon move into the ASX 200 because of the recovery in its fortunes) jumped more than 4.7% yesterday to $7.04 (cutting the fall so far in the past three months to around 12% and boosting the rise in the past month to nearly 15%. Investors believe it won’t be hit hard by the drought, but analysts say the drought will is already undermining cattle and sheep prices which is where Elders has been concentrating.
The impact on GrainCorp, which dominates the East Coast grain sector, has already seen its shares weaken, but a better than expected outlook last week with positive news about the strength of its malting business has seen the shares strengthen, even though they ended steady on $7.93 yesterday.
