Wednesday, April 18th, 2012

Every March, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) run their annual outlook conference. As part of their preparation for the conference, members of the Bureau collectively review their five year projections for key agricultural commodities.

This month’s Agrinews details the latest ABARES forecasts and assess their implications for the industry. Global economic growth was 3.8% in 2011 but is projected to fall slightly, to 3.5%, in 2012 before trending to around 4% over the next five years.

Concerns over government debt refinancing mean that economic growth in the OECD (developed countries) is expected to be constrained at around 2% over the next five years. By contrast, developing countries are forecast to average over 6% growth per year in the same period.

Growth in developing countries is more important than growth in the OECD. In the OECD there is more than enough food to eat, so increases in income aren’t spent on food (although you might buy a nicer wine). But in the developing world we know that increases in income have a direct impact on demand for food.

Because populations are increasing in the developing world at the same time as the economy grows, demand for food is projected to rise. This will favour protein products (meat, milk and eggs) over carbohydrates (grains), with the latter only increasing in line with population growth.

ABARES forecast that the Australian dollar will stay at US$ 104c through 2012. But slowing demand for hard commodities and a gradual narrowing of interest rate differentials to global economies is expected to result in a slight falling off to US$ 95c by 2017.

La Nina losing its grip

The 2011/12 La Nina event appears to be nearing its end with neutral ENSO conditions beginning to prevail; the majority of forecast models are now predicting neutral conditions through to at least the end of autumn.

As a result of the La Nina event water temperatures are above average around Australia. This, in turn, has prompted forecasts of above average rainfall, supported by tropical cyclone activity, on the east coast over the next three months.

The Indian Ocean dipole is currently neutral and is expected to have little impact during autumn. Rainfall models indicate slightly below average falls through WA over the next three months, although it should be noted that rainfall is typically low during these periods anyway.

Confidence in the model is reasonable in WA but lower on the east coast. With warm sea temperatures around the continent, minimum temperatures are expected to be well above average throughout Australia over the next three months.

Forecasts for maximum temperatures are more geographically divided: above average in WA, below average in northern NSW and average through the east coast.

Developing Countries are forecast to grow at over 6& per year over the next five years

Coarse grains, wheat & oilseeds

Coarse Grains

Corn is again set to drive world coarse grain to record production levels (almost 1.2 billion tonnes).

A 6% increase in barley production is also projected – to 147mt. With 490mt of coarse grains now used for industrial purposes (largely to make ethanol in the US) demand has changed dramatically in recent years.

The diversion of corn to ethanol has created greater competition for acres leading to higher prices globally. But with the US renewable fuel mandate now met, industrial demand for ethanol looks set to taper over the next few years.

World closing stocks of coarse grains will rise to 168mt in 2012/13, an increase of 10% on 2011/12 levels. This is likely to result in a softening of prices during the year. While corn prices are set to fall, the wheat differential is expected to return closer to the long term average, keeping price falls relatively minor.

World barley stocks are forecast to increase by 15% to 26mt, just below the long term average of 27mt.


On the back of record global opening stocks and a slight increase in planted area, ABARES expect the world wheat indicator price (US HRW fob gulf) to decline to an average of around US $275/t in 2012/13.

Production and consumption will be around 680mt so, barring any major weather issues, the global balance sheet appears poised to remain loose for another year with poor prices expected to continue into 2013/14.


Encouraged by improved seasonal conditions in the EU, ABARES forecast world oilseed production to increase to a record 467mt in 2012/13. Consumption is also expected to rise – to 469mt.

Oilseed demand is growing due to its popularity both as a high protein animal feed and as a feedstock for biodiesel in the EU (where canola is the feedstock of choice). Industrial use of oilseeds is not as important as it is for coarse grains.

Closing stocks are forecast to increase 4% in 2012/13 to 79MT. Thanks to improved seasonal in conditions in the EU, world oilseed production is forecast to increase to a record 467MT in 2012/13.

Sugar & Cotton

Record prices paid for SUGAR in 2010/11 have prompted a substantial rise in production, with global levels projected to increase 9.8mt to a record 176mt in 2011/12.

As a result of increased production, stock-to-use levels are also tipped to rise; ABARES forecasts levels to recover close to 40% over the next two years.

With concerns over supply diminishing, prices have come off in 2011/12 (down to US$ 21.5c/lb) and supply increases next year will be muted. Over the longer term, however, the rising global population supports a positive outlook for sugar.

Demand is projected to increase by 2.4% next year, reflecting the growing affluence of populations in the world’s developing nations.

In 2010/11 global COTTON supplies fell to levels that caused anxiety among consuming businesses concerned about their capacity to keep up with demand.

This anxiety was reflected in the markets – a spectacular price run saw cotton fetch $1000/bale. Production has recovered strongly in 2011/12, increasing globally by 7% to a record 26.9mt.

Improved supply, combined with the economic shock of GFC2, has seen demand fall to 24mt. Stock levels are now comfortable again and ABARES predict prices will fall to US$ 103c/lb in 2011/12 and 95c/lb in 2012/13...then make a gradual recovery as the global economy improves.

Cattle, Sheep, Pig & Poultry

Rising incomes in the developing world are expected to drive economic growth over the medium term. As global affluence increases so does demand for food, especially protein – good news for our livestock industries.

Beef & Veal

When the drought broke in eastern Australia in 2010, farmers launched a concerted campaign to rebuild their herds – a strategy aided by a good season in 2011 and early rains in 2012.

As herds are progressively replenished (and steadily returned to longer term stocking rates), heifers and cows are being held back on farm with females representing only 40% of slaughter volumes.

ABARES expect lower cattle supplies to result in a 2% increase in beef prices to 330c/kg dressed in 2011/12 before a slight fall to 325c/kg in 2012/13.

Once restocking is complete, prices are projected to depreciate slowly through the outlook period.

Australia exports 60% of all beef produced in the country so the high Aussie dollar is having an impact on beef export prices, especially lower priced frozen cuts which are struggling to maintain their values.

While demand is likely to remain healthy for these cuts over the outlook period, prices will continue to come under pressure.

Sheep Meat

By the start of the 2010 season sheep flock numbers in Australia had fallen to 68 million head, largely the result of multiple droughts on the east coast.

But over the last two years we have witnessed a significant rebound in numbers, with the flock now projected to total 78 million by the end of 2011/12.

These increases have been facilitated by a combination of good seasonal conditions and a sustained period of favourable prices for both sheep meat and wool.

Demand for sheep meat is well spread between the US, China and a cluster of countries in Middle and Northern Africa.

As the economies in these countries continue to grow, ABARES believe the national flock will maintain its expansion.

At the same time, boosted by both restocker and export demand, it also forecasts that prices will increase marginally in 2012/13 to 535c/kg.

Australia’s flock structure appears to be evolving away from a wool-dominant flock.

While the genesis of the flock is likely to remain merinos, there are clear indications of a shift towards a meat-focussed terminal sire-based operation.

These changes, combined with the good seasonal conditions, has seen average slaughter weights increase to 24kg in 2011/12.

As key sheep meat exporting nations are not increasing their flocks at the same rate as Australian producers the outlook remains positive over the next few years.


Australia’s love affair with chicken, our cheapest form of protein, shows no sign of abating.

Consumption is currently 45.5kg per person per annum and is expected to grow by 1% each year to 2016/17 (when consumption is forecast to reach 46.4kg per person).

The feed conversion efficiency of chickens is higher than any other meat, making production economics highly compelling.

Production is forecast to increase by 2% in 2012/13 to 1.1mt and ABARES projects that demand for chicken will continue to increase at a higher rate than competitor meats.

Lower grain prices, while not impacting on chicken farmers directly, also add to the positive outlook; they are expected to make the industry even more profitable in 2012/13.

Pig Meat

In 2012/13 ABARES estimate that the average price of Australian pig meat will fall 2% to 275c/kg (in real terms this amounts to fairly stable performance over the outlook period).

With feed representing 55% of input costs for pigs, the recent falls in grain prices have improved sector productivity.

Ongoing competition from imports in the processed meat sector is set to see the industry focus on the fresh pork market.

Over the last decade imports have been progressively increasing and now stand at 132,000 tonnes – that’s 27% of all pig meat consumed in Australia.

Farms to tough out price falls

Falling demand for dairy products across Europe and the US has prompted ABARES to forecast a 5% weakening of world dairy prices in 2012/13.

Developing nations are predicted to have strong demand through the period, but this is not expected to be sufficient to offset the high production in key producing and exporting countries.

Although prices are projected to fall next year and then continue to decline steadily over the entire outlook period, they remain 20-30% higher than values on offer prior to 2006/07.

When low fodder costs are also factored in this puts farms in a good position to tough out even an extended period of depreciation.

ABARES predict the average price of Aussie milk will drop 3% in 2012/13 to 39.6c/l before falling to a real price equivalent of 36c/L by 2016/17.

With good fodder production and rainfall during the last two years, the nation’s dairy herd is projected to increase by 1% (to 1.62m) by June 2012.

Full dams are expected to increase herd numbers on irrigated farms in Victoria, leading to further expansion over the next year.

ABARES predict a return to normal seasonal conditions will result in steady increases in production each year to 2016/17.

Wool "Troubled EU Weighs on EMI"

Europe’s ongoing flirtation with recession, in particular the sovereign debt issues that continue to plague the economies of its smaller member states, has seen demand for wool decline through the second half of 2011.

As a consequence the EMI has fallen over 200c/kg from its recent peaks.

ABARES forecast that the EMI will sit around 1085c/kg in 2012/13 and remain stable through to 2016/17.

The price ratio of wool to both cotton and polyester is currently around six times above the five-year average and demonstrates the slowly changing market.

The long term outlook for demand is positive, with an emerging Chinese market expected to compete with Europe (when it finally starts consuming again).

If, as forecast, the Australian flock increases over the next three years, wool production will slowly rise, although a change to a more meat-dominant flock is likely to see medium and broad micron wools increase at the expense of fine wools.

Contact Profile

Peter Rowe

Peter Rowe writes for Bankwest and provides valuable agricultural finance news and updates covering the latest on rural loans and all other Agri Finance products provided by Bankwest.

Peter Rowe
P: (08) 9420 5179


agribusiness finance, farm loans, rural finance, rural loans, rural businesses, rural banking, bankwest, australia



More Formats

View QR Code