Oz government crop bureau highlights record export potential for 2022; but inflation and floods weigh, weak AU dollar to persist

Despite floods and inflation continuing to weigh on Australia’s farmers wholemeal, the country’s agricultural exports are expected to hit $72bn this year as farms in WA, SA and VIC remain largely spared by scenes of disaster that have haunted QLD and NSW since February.

The forecast was included in the Australian Bureau of Agricultural and Resource Economics and Sciences' (ABARES) latest tranche of data released Tuesday on the health of the agriculture sector.

In its outlook for crops, the bureau notes 2022-2023 will see the second highest value for crop productions in Australia on record.

Also worth noting is the bureau expects Australian farmers to harvest the biggest ever wheat crop on record this year at the same time food prices are expected to remain high into 2024.

Those high prices will uplift the value of Australian grains and oilseeds through to 2023, with the Australian wheat export price tipped to increase by 11% to average $345/tonne.

Canola prices, conversely, are expected to fall 13%.

These same upward pressures on the price of food, however, have also spread into fertiliser and chemicals and machinery, meaning conversely this year’s aggregate crop harvest will be one of the most expensive in the country’s history.

Australian dollar averaged at US65c 2022-2023

ABARES has today averaged the Australian dollar to sit at US65c across the 2022-2023 period, noting that China’s economic growth remains hampered by COVID lockdowns.

This situation remains in flux as ongoing protests in China continue; Reuters reported overnight more news on possible easing of Covid restriction measures.

ABARES notes that energy commodity prices and supply chain delays have also eased, which is surely due in part to a drop in demand for shipping.

Regardless, ABARES also expects inflation, and interest rates, to remain high throughout next year.

What about livestock?

ABARES notes livestock value of production remains steady for 2022-2023 at an estimated $34bn, though livestock exports are expected to fall 5% to $26bn.

The overall value of beef, lamb and wool production will fall due to lower prices, the bureau notes.

Conversely, higher farmgate milk prices are expected to increase the value of dairy production by up to 22%, a sum of $6bn, even as milk production will come in lower. Those gains are expected to offset the loss of value for beef and lamb.

ABARES notes that the risk of a global economic downturn, if more rapid than expected, could throw these projections off kilter.

‘Global dry conditions’ lead to worldwide shortfalls

Looking at climate, ABARES noted on Tuesday that dry conditions overseas had impacted global supply chains.

“Shortfalls in grain production have primarily been driven by below average rainfall in many of the world’s major grain and oilseed producing regions following persistent drought and heat wave conditions throughout much of 2022,” ABARES notes.

The bureau also noted that drought in Australia over the 2022-2023 forecast period is “less likely apart from southwest WA and Western Tasmania.”

Bushfire risk is also more likely for WA; as are heatwaves.

One upside to the east coast floods: irrigation water storage levels are at the highest levels since 2011-2012.

Stocks to keep an eye on in coming months:

• Graincorp (ASX:GNC) (potential beneficiary of high food prices)

• Elders (ASX:ELD) (potential beneficiary of higher food prices, but recent earnings results saw a -23% decline in the company's share price)

• Incitec Pivot (ASX:IPL) (potential beneficiary of higher fertiliser prices)

• Australian Agricultural Company (ASX:AAC) (potential beneficiary of higher food prices)

A look at Graincorp's five year charts