Canberra | Reuters — Drought conditions across Australia’s east coast will cut production of key agricultural commodities such as wheat and beef next season and reduce exports, the government’s chief commodities forecaster said on Tuesday.
The current season could see Australia, the world’s third-largest wheat exporter, produce a bumper wheat crop, with increased plantings and if late season rains materialize.
However, forecasts of a return of dry El Nino weather conditions across the key farming states of Queensland and New South Wales later in 2014 mean the prospects for agricultural production remain uncertain.
Global markets will be carefully watching forecasts of the Australia’s crop give concerns over tensions disrupting supply in the Black Sea, one of the world’s key grain exporting regions.
Australian wheat production is forecast to fall 8.2 per cent to 24.795 million in the 2014-15 season from 27.013 million tonnes in the previous year as dry conditions curb yields, the Australian Bureau of Agricultural, Resource Economics and Sciences (ABARES) said on Tuesday.
ABARES said the decline in production will come despite a two per cent increase in acreage planted as yields return to historical average levels due to dry conditions.
“The crop will go in the ground, but we will be relying on rains across the country,” said Luke Mathews, commodities strategist, Commonwealth Bank of Australia.
Despite the dry conditions, this season’s wheat harvest could be the country’s sixth-largest crop on record. Such a bumper crop could drag on rising U.S. wheat prices.
Chicago Board of Trade March wheat futures rose as much as four per cent on Monday amid rising tensions in Ukraine raised fears of disruptions to shipments from the Black Sea.
Ukraine mobilized for war Sunday and Washington threatened to isolate Russia economically, after President Vladimir Putin declared he had the right to invade his neighbour in Moscow’s biggest confrontation with the West since the Cold War.
Drought impacts beef exports
ABARES upped its forecast for 2013-14 beef exports to 1.15 million tonnes amid record slaughter due to a two-year drought in cattle state Queensland.
With parts of Queensland, Australia’s largest cattle producing state and home to half the country’s national herd, recording the driest two-years on record, farmers have been forced to slaughter a record amount of animals.
ABARES said Australia’s national herd will fall to 27.1 million head, the lowest since the 2009-10 season, a year also impacted by drought.
But the following season, 2014-15, ABARES is forecasting that cattle farmers will begin to rebuild stock once the drought breaks, resulting in a fall in beef exports of nearly seven per cent.
ABARES said if the drought breaks exports would fall to 1.04 million tonnes, cementing Australia’s position as the world’s third largest beef exporter.
However, with the Australian Bureau of Meteorology calling for a continuation of the hot, dry conditions in Queensland, cattle slaughter rates could continue at near record pace, limiting any slowing of exports.
Beef exports to China grew nearly 80 percent in the 2013/14 season and China is forecast to buy 175,000 tonnes of Australian beef, becoming the second-largest buyer of Australian beef, overtaking Korea.
Falls in canola, cotton
Australian canola production in the 2014-15 marketing season is expectedt to fall 17 per cent to 2.948 million tonnes, ABARES said, down from the 3.548 million tonnes in the previous season.
Dry conditions will discourage the planting of the oilseed, with planting seen falling five per cent, it said.
The dry weather will also impact Australian cotton, though production is still seen as the third-largest crop on record.
ABARES said 2014-15 cotton production will fall 11.4 per cent from the previous season as farmers abandon dryland cotton.
Australian sugar production in 2014-15 will total 4.4 million tonnes, ABARES said, up on the 4.2 million tonnes harvested in the previous year when yields were damaged by floods and crop disease.
— Colin Packham is a Reuters commodities correspondent based in Sydney, Australia.