ABARES, the Australian Bureau of Agricultural and Resource Economics and Sciences, released its Australian Crop Report last week. After three years in a row of La Niña and big crops, ABARES is forecasting that the next winter crop (which is currently being planted) will decline materially (-34% year-on-year) due to dry weather.
ABARES said that a significant downside risk to the 2023/24 winter cropping season is the potential for an El Niño event to eventuate later this year. The development of an El Niño event (as opposed to La Niña) is likely to result in below-average rainfall across eastern Australia. ABARES is forecasting Australian agricultural production to fall by 14% (the previous forecast was -10%) in 2023/24 reflecting drier conditions and lower commodity prices.
Earnings for most agribusinesses peaked in FY22. A smaller crop has implications for the listed agricultural and chemical companies and their earnings in 2H23 and FY24, particularly those most leveraged to crop volumes. If dry conditions return, this creates earnings uncertainty and thus stocks are likely to trade lower.
Source: AFR, ABARES
While Australian winter crop production is forecast to fall from record highs due to below-average rainfall for winter and spring, on a more positive note, high crop prices, good seasons, and record farm cash incomes over the last three years mean many growers will stay in a strong financial position despite the fall in production.
For the major winter crops, which include cereals (e.g. wheat, barley, oats); oilseeds (e.g. canola, mustard); and pulses (e.g. chickpeas, beans, and peas), areas planted will tilt towards those crops better able to adjust to drier conditions.
According to ABARES, despite the decline in production and weather events, national planting to winter crops in 2023–24 is set to remain historically high in 2023–24 at 23.3 million hectares, 6% above the 10-year average. Summer crop production in 2022–23 remains above average but below last season’s record.
Agriculture remains a vital contributor to Australia’s economy, employing more than 370,000 people, including 135,000 farmers. Together, those farmers generate enough produce for 80 million people, allowing them to provide 93% of the domestic food supply while also exporting close to $50 billion of commodities (or 13% of total exports) each year.
Total value of Australia’s agricultural exports (2016 – 2022, with forecast for 2023)
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