Agricultural commodities

Research by the Australian Bureau of Agricultural and Resource Economics and Sciences

MARCH QUARTER 2013

© Commonwealth of Australia 2013

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Cataloguing data

ABARES 2013, Agricultural commodities: March quarter 2013, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.

ISSN 189-5619 (printed)

ISSN 189-5627 (online)

ISBN 978-1-74323-069-5 (printed)

ISBN 978-1-74323-070-1 (online)

ABARES project 43006

Internet

Agricultural commodities: March quarter 2013 is available at: daff.gov.au/abares/publications.

Contact

Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES)

Postal address GPO Box 1563 Canberra ACT 2601 Switchboard+61 2 6272 2010

Facsimile+61 2 6272 2001

Emailinfo.abares@daff.gov.au

Webdaff.gov.au/abares

Inquiries regarding the licence and any use of this document should be sent to: copyright@daff.gov.au.

The Australian Government acting through the Department of Agriculture, Fisheries and Forestry represented by the Australian Bureau of Agricultural and Resource Economics and Sciences, has exercised due care and skill in the preparation and compilation of the information and data

in this publication. Notwithstanding, the Department of Agriculture, Fisheries and Forestry, ABARES, its employees and advisers disclaim all liability, including liability for negligence, for any loss, damage, injury, expense or cost incurred by any person as a result of accessing, using or relying upon any of the information or data in this publication to the maximum extent permitted by law.

Contents

Economic overview

7

Agriculture

29

Crops

Grains and oilseeds

30

Sugar

53

Cotton

66

Horticulture

74

Livestock

Beef and veal

86

Sheep meat

96

Pig meat

104

Chicken meat

108

Wool

111

Dairy

119

Forestry

129

Engineered wood products

130

Fisheries

139

Farm performance: broadacre and dairy farms, 2010–11 to 2012–13

153

Agricultural productivity: Productivity in the broadacre and dairy industries

199

Boxes

Impact of natural disasters in early 2013 on agricultural production

26

Drought conditions in the United States

32

US sugar program

60

Export efficiency powers for horticulture

82

Sustainability

148

The broadacre sector of Australian agriculture is defined to include five industry types

156

Major financial performance indicators

159

Farm survey methodology

160

Australia’s international productivity performance

201

ABARES index coverage and construction

203

Statistical tables

221

Report extracts

264

ABARES contacts

269

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Regional Outlook conferences 2013 – future food, future farming

ABARES is delivering commodity forecasts, research and analysis directly to rural and regional Australia again in 2013

Promoting discussion on industry productivity, community vitality and environmental sustainability, the 2013 conferences will balance national and regional perspectives; focus on the future; and emphasise agricultural, fisheries and forestry strategies that work in a context of economic volatility and climatic variability.

ABARES invites collaboration from regional, state and national agencies to focus on industries and issues relevant to each region.

Delegates from businesses, government, and the community will discuss industry trends, access forecasts and other information, make new contacts in their community and be exposed to new ideas while gaining an understanding of global issues that affect their region.

From 2013, ABARES is producing papers profiling agricultural, fisheries and forestry activities for 49 regions across Australia. These regional profiles can be accessed from the ABARES website.

Promoting discussion on industry productivity, community vitality and environmental sustainability, the 2013 conferences will balance national and regional perspectives; focus on the future; and emphasise agricultural, fisheries and forestry strategies that work in a context of economic volatility and climatic variability.

ABARES invites collaboration from regional, state and national agencies to focus on industries and issues relevant to each region.

Delegates from businesses, government, and the community will discuss industry trends, access forecasts and other information, make new contacts in their community and be exposed to new ideas while gaining an understanding of global issues that affect their region.

From 2013, ABARES is producing papers profiling agricultural, fisheries and forestry activities for 49 regions across Australia. These regional profiles can be accessed from the ABARES website.

2013 Locations and Dates

State or Territory

City

Date

Tasmania

Hobart

1 May

Victoria

Cardinia

2 May

Queensland

Townsville

12 June

South Australia

Coonawarra

30 July

Western Australia

Northam

1 August

New South Wales

Tamworth

4 September

Northern Territory

Darwin

10 October

For inquiries and to register your interest contact

Anna Carr Director, Research

Engagement and Outlook Phone +61 2 6272 2287

Email conferences@daff.gov.au

daff.gov.au/abares/regional

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Economic Overview

(Chapter title page)

(234 ABARESAgricultural commodities – vol. 3 no. 1 • March quarter 2013)

Page 62 ABARES Agricultural commodities - March Quarter 2013

Economic overviewOutlook to 2017–18

Patrick Hamshere and Brian Moir

· World economic growth is assumed to improve modestly in 2013 to 3.5 per cent, after weakening to an estimated 3.2 per cent in 2012. Over the medium term to 2018, world economic growth is assumed to average around 4 per cent a year.

· Emerging economies, particularly in Asia, are expected to remain the main drivers of world economic activity, while the public sector debt issue in Western Europe and large budget deficits in the United States are likely to constrain economic growth.

· Considerable risks remain in the world economic outlook, with highly indebted governments needing to address unsustainable fiscal positions and implement consolidation measures in coming years.

· The exchange rate is expected to average US$1.04 in the short term, and is assumed to remain around parity against the US dollar over the medium term.

Global economyGlobal economic growth to improve modestly in 2013

Global economic growth moderated in 2012, reflecting weak private demand in major OECD economies amid concerns over public debt levels. Emerging economies, particularly in Asia, underpinned world economic activity; however, growth was adversely affected by the slowdown in OECD economies because of trade linkages.

Economic growth in major OECD economies is expected to improve gradually in the short term. The fiscal crisis in Western Europe and the need for budgetary tightening in the United States are expected to place downward pressure on economic growth, although stimulus spending in Japan is expected to temporarily support economic activity. For the OECD region as a whole, economic growth is assumed to average 1.5 per cent in 2013, compared with 1.3 per cent in 2012 and an average growth rate of 1.1 per cent in the five years to 2011.

For emerging economies, the outlook remains positive. Export performance in many developing Asian economies will be supported by improving growth in developed economies. However, growth is unlikely to return to the levels recorded between 2005 and 2009, at least in the short term. Robust domestic demand is expected to be

the main driver of economic activity. For developing countries as a whole, economic growth is assumed to average 5.9 per cent in 2013, following growth of 5.7 per cent in 2012, compared with an average of 7 per cent in the five years to 2011.

Against this backdrop, world economic growth is assumed to increase to 3.5 per cent in 2013, following growth of 3.2 per cent in 2012.

Medium-term growth outlook

Looking ahead, global economic growth is assumed to recover to around 4.3 per cent in 2015. The assumed improvement in economic growth largely reflects a recovery in private demand, particularly in OECD economies. Toward 2018, economic growth is assumed to average around 4 per cent a year.

World economic growth

Note:a ABARES assumption

General government debt (gross) in selected countries, % of GDP

Country

2007a

2012b

2013b

2014b

2017

Australia

9.7

27.1

27.2

26.4

21.2

Brazil

65.2

64.1

61.2

58.9

54.0

China

19.6

22.2

19.6

17.3

10.1

France

64.2

90.0

92.1

92.9

86.5

Germany

65.4

83.0

81.5

79.6

73.7

India

75.5

67.6

66.7

65.6

64.3

Italy

103.1

126.3

127.8

127.3

120.6

Japan

183.0

236.6

245.0

246.2

250.3

United Kingdom

43.7

88.7

93.3

96.0

93.7

United States

67.2

107.2

111.7

113.8

114.0

a Pre–global financial crisis. b Updated January 2013. Source: International Monetary Fund

For some OECD economies, concerns about high levels of public debt are likely to persist. Projections from the International Monetary Fund indicate that gross general government debt, as a share of gross domestic product, for major OECD economies such as the United States and Japan, is likely to increase over the outlook period if no significant reduction measures are taken. In the United States, gross general government debt is projected to increase from 107 per cent of gross domestic product in 2012 to around 114 per cent by 2017, while Japanese debt is expected to rise from an estimated 237 per cent in 2012 to 250 per cent in 2017.

As recently seen in a number of European economies, financial markets can perceive an economy with high levels of government debt as a high-risk investment destination, leading to declining inflows of foreign investment, rising real interest rates (reflecting a risk premium to prevent capital outflows) and currency devaluation. The challenge for highly indebted governments will be to balance the short-term need to stimulate economic activity with the requirement of fiscal consolidation over the medium term.

Over the medium term, activity in OECD economies is expected to recover at a modest pace through 2014, with growth assumed to average 2.3 per cent for the year as a whole. In 2015 economic growth is assumed to increase to 2.5 per cent, in line with increases in private consumption and investment. Economic activity is assumed to grow at slightly more than 2 per cent a year toward 2018.

For developing countries, economic growth is assumed to be relatively strong over the outlook period. In non-OECD Asia, economic growth will be underpinned by domestic demand and intraregional trade. Economies in Africa, the Middle East and Latin America are also expected to maintain solid growth in the next few years under the assumption of relatively strong commodity prices. In Eastern Europe, the Russian Federation and Ukraine, economic growth is assumed to remain relatively strong, supported by improved economic conditions in their major trading partners in Western Europe.

For developing countries as a whole, economic growth is assumed to be 6.2 per cent in 2015, following assumed growth of 6.1 per cent in 2014. Toward 2018, economic growth is assumed to be around 6.1 per cent a year.

Regional economic growth

Note: a ABARES assumption

Key macroeconomic assumptions

World Economic growth

unit

2011

2012

2013a

2014a

2015a

2016a

2017a

2018a

OECD

%

1.6

1.3

1.5

2.3

2.5

2.2

2.1

2.1

United States

%

1.8

2.2

2.4

3.0

3.0

2.7

2.5

2.5

Japan

%

– 0.6

2.0

1.5

1.3

1.1

1.1

1.1

1.1

Western Europe

%

1.4

– 0.4

0.2

1.5

2.1

1.8

1.8

1.8

– Germany

%

3.0

0.7

0.6

1.8

2.2

2.0

2.0

2.0

– France

%

1.7

0.2

0.4

1.5

1.7

1.5

1.5

1.5

– United Kingdom

%

0.9

0.0

0.8

1.9

2.5

2.5

2.5

2.5

– Italy

%

0.4

– 2.3

– 0.8

0.5

1.0

1.0

1.0

1.0

Korea, Rep. of

%

3.6

2.0

3.0

4.2

4.0

4.0

4.0

4.0

New Zealand

%

1.5

2.3

2.6

2.5

2.4

2.4

2.4

2.4

Developing countries

%

6.4

5.7

5.9

6.1

6.2

6.1

6.1

6.1

– non‐OECD Asia

%

7.8

6.7

7.2

7.3

7.4

7.2

7.2

7.2

South‐East Asia b

%

4.5

5.4

5.5

5.8

5.7

5.7

5.7

5.7

China c

%

9.3

7.8

8.1

8.3

8.3

8.0

8.0

8.0

Taiwan

%

4.1

1.1

3.4

4.4

4.7

4.5

4.5

4.5

Singapore

%

4.9

1.2

2.9

4.1

4.2

4.0

4.0

4.0

India

%

8.3

5.5

6.1

6.6

7.0

7.0

7.0

7.0

– Latin America

%

4.5

3.2

3.6

3.9

4.0

4.0

4.0

4.0

Russian Federation

%

4.3

3.7

3.5

3.7

4.0

4.0

4.0

4.0

Ukraine

%

5.2

0.2

2.2

3.5

3.7

3.7

3.7

3.7

Eastern Europe

%

5.3

2.0

2.4

3.1

3.8

3.8

3.8

3.8

World d

%

3.9

3.2

3.5

4.1

4.3

4.0

4.0

4.0

Inflation

unit

2011

2012

2013a

2014a

2015a

2016a

2017a

2018a

United States

%

3.2

2.1

1.8

2.0

2.0

2.0

2.0

2.0

Interest rates

unit

2011

2012

2013a

2014a

2015a

2016a

2017a

2018a

US prime rate e

%pa

3.3

3.3

3.3

3.3

3.6

5.6

5.6

5.6

a ABARES assumption. b Indonesia, Malaysia, the Philippines, Thailand and Vietnam. c Excludes Hong Kong. d Weighted using 2011 purchasing power parity (PPP) valuation of country gross domestic product by the International Monetary Fund.

e Commercial bank prime lending rates in the United States.

Sources: ABARES; Australian Bureau of Statistics; International Monetary Fund; Organisation for Economic Cooperation and Development; Reserve Bank of Australia

Economic prospects in Australia’s major trading partnersUnited States

After easing in 2011, economic growth in the United States recovered modestly in 2012. Real gross domestic product is estimated to have expanded by 2.2 per cent in 2012, compared with 1.8 per cent in 2011. The improved growth rate in 2012 reflects increased private sector demand.

Partial indicators released recently suggest that private sector demand will continue to grow at a modest pace, despite uncertainty over US fiscal policy weighing on consumer and business confidence. Consumer spending, which accounts for around 70 per cent of real gross domestic product, expanded year-on-year by 1.9 per cent in the December quarter 2012, unchanged from the growth rate recorded in the September quarter and up marginally from 1.8 per cent in the March quarter.

Strengthening in the housing market and a gradual decline in the unemployment rate are expected to support private sector activity. Housing starts increased year-on-year by 36.9 per cent in December 2012 to an annual rate of 954 000 units. This compares with an annual rate of 720 000 units in January 2012 and 478 000 units at the height of the global financial crisis. Housing construction approvals, a proxy for future construction, increased year-on-year by 29.7 per cent in December 2012 to an annual rate of 909 000 units, its highest level since July 2008.

US housing market indicators

The unemployment rate in the US decreased in 2012, recording 7.8 per cent in December 2012. While this is an improvement from 8.3 per cent in January 2012, it has remained largely unchanged since September 2012, with further improvements likely to occur gradually.

The manufacturing sector continued to grow at a solid pace through 2012. Industrial production grew by 3.7 per cent in 2012, down slightly from 4.1 per cent in 2011. Strengthening external demand and business investment are expected to support manufacturing in the short term.

Uncertainty surrounding the so-called fiscal cliff—an automatic US$600 billion fiscal consolidation measure—adversely affected consumer and business sentiment in the latter part of 2012. On 1 January 2013, congress delayed the largest component of proposed budget cuts by extending most income tax cuts that had been scheduled to cease in 2013. Public spending cuts, another large component, were also postponed until March 2013, the same time as the United States Government’s debt level is expected to reach its legislated limit. Decisions on public spending cuts have the potential to significantly affect US economic growth in the short term. The challenge for US fiscal policy will be to balance the short-term need to stimulate economic activity with fiscal consolidation over the medium term.

In preparing this set of agricultural commodity projections, economic growth in the United States is assumed to be 2.4 per cent in 2013, before strengthening to 3 per cent in 2014 in line with an assumed improvement in housing and labour markets. Over the medium term, the need for fiscal consolidation will likely hold back economic activity, with growth to average 2.5 per cent a year, somewhat lower than its potential growth rate of around 3 per cent a year.

OECD economic growth

Note: a ABARES assumption.

China

Economic growth in China moderated in 2012, although continues to remain strong. For 2012 as a whole, the Chinese economy expanded by 7.8 per cent, down from 9.3 per cent in 2011. The moderating growth rate largely reflects weaker export growth, with investment and consumer demand also easing somewhat during the year.

Growth in domestic demand was the main contributor to economic growth in China in 2012. Supported by increased government spending, investment in fixed assets grew by 20.6 per cent in 2012, down from 24 per cent in 2011. Retail sales increased by 14.3 per cent in 2012, following growth of 17.1 per cent in 2011.

China’s exports were adversely affected by a slowdown in OECD economies in 2012. Export earnings increased by 7.9 per cent in 2012, compared with growth of more than 20 per cent in 2011 and 30 per cent in 2010. Nevertheless, improving demand from OECD economies has led to improved export performance in recent months, with exports increasing 14 per cent year-on-year in December 2012.

Recent trade indicators for China

In line with the recent pickup in exports, manufacturing activity improved in recent months. Industrial production expanded at a year-on-year rate of 10.3 per cent in December 2012, up from a recent low of 8.9 per cent in August. China’s official manufacturing purchasing managers’ index was 50.6 in December, indicating that the manufacturing sector is likely to keep expanding in the near term.

Reflecting moderating growth, inflationary pressures eased in 2012. Consumer prices rose by 2.6 per cent in 2012 compared with 5.4 per cent in 2011.

In preparing this set of agricultural commodity projections, economic growth in China is assumed to average 8.1 per cent in 2013 and 8.3 per cent in 2014. The main downside risk is that world economic growth does not recover as quickly as assumed here, which would adversely affect China’s export performance. On the upside, lower inflation is likely to have provided room for more accommodative monetary settings if external demand remains weak. In addition, China has proved more resilient to both internal and external shocks than other major world economies. Consequently, it is possible that economic growth in China will outperform current expectations.

A major challenge for sustained economic growth in China, over the medium term, is the need to rebalance its sources of economic growth toward consumer demand and away from exports. As its participation in world trade rises, it will be difficult for China to maintain rapid export growth, particularly given increased market access tensions between China and other major world economies.

Over the medium term, economic growth in China is assumed to average around an annual rate of 8 per cent to 2018.

Japan

After rebounding in early 2012, economic growth in Japan weakened in the second half of the year. Real gross domestic product expanded at a year-on-year rate of 0.5 per cent in the September quarter 2012, compared with growth of 2 per cent for 2012 as a whole. The slowing growth rate largely reflects reduced reconstruction activity, which has been the main driver of economic growth since the earthquake and tsunami in 2011.

Exports and industrial production remained weak in 2012, reflecting subdued external demand and the high value of the Japanese yen against other major world currencies. Exports fell by 2.8 per cent for 2012 as a whole, similar to the decline in 2011. Industrial production was unchanged in 2012 after declining by 2.4 per cent in 2011. In coming quarters, strengthening external demand and a weaker yen are expected to provide support to Japan’s export sector.

Japan industrial production and exports

In an attempt to restore economic growth, the Japanese Government recently announced stimulus measures. Fiscal stimulus of 10.3 trillion yen ($120 billion) was announced on 11 January 2013, which is expected to boost public infrastructure spending and private investment.

In addition, the Bank of Japan announced on 22 January 2013 new measures aimed at ending deflation, setting a 2 per cent target for inflation and committing to open-ended asset purchases. If deflation is ended, a modest inflation rate would support business spending and place pressure on the yen to depreciate. Given that Japan has recorded little inflation over the past 15 years, considerable monetary stimulus will be needed if it is to reach the target rate. In anticipation of the announcement, the Japanese yen depreciated 13.9 per cent against the US dollar between early November 2012 and late January 2013, and the Nikkei share market index increased by 28.6 per cent.

Japan stock market and exchange rate

Consumer price index in selected OECD economies

While these measures are expected to support economic activity in the coming year, many commentators have expressed doubts over the ability of the Japanese economy to return to higher levels of growth over the short to medium term. In particular, high public debt, weak productivity performance, especially in the non-traded sector, and an ageing population are expected to be major challenges for sustaining economic growth in Japan over the medium term.

In preparing this set of agricultural commodity projections, economic growth in Japan is assumed to be 1.5 per cent in 2013, before easing to 1.3 per cent in 2014. Over the medium term, economic growth is assumed to average around 1.1 per cent a year to 2018.

Western Europe

Economic conditions in Western Europe deteriorated over the course of 2012. In Italy, economic activity contracted by 2.3 per cent. Growth slowed considerably in Germany and France, but remained positive.

The slowdown mainly reflects decreased private sector demand. In Italy, consumer spending declined by 2.7 per cent in 2012, after declining by 0.1 per cent in 2011. In France, consumer spending grew by 0.4 per cent in 2012. Private sector demand was weakened by high unemployment and weak consumer and business confidence amid concerns over the financing of sovereign debts.

The unemployment rate remained high for most Western European economies in 2012 and has shown few signs of improving in recent months. In Italy, unemployment was 11.2 per cent in December 2012, compared with 9.7 per cent in January 2012. In France, unemployment averaged 10.3 per cent in 2012.

Unemployment rate in selected European economies

Consumer and business confidence weakened in 2012. The European economic sentiment index fell 10.3 per cent in 2012, after declining by 1 per cent in 2011, although it has improved in recent months. Yields on Italian Government bonds, which reached 7 per cent in early 2012, were around 4 per cent in early 2013, the same level as before the 2008 global financial crisis.

Weak labour markets and continued fiscal consolidation are expected to hold back a significant recovery in the short term. Economic activity is expected to stabilise in 2013, with growth assumed to average 0.2 per cent for the year as a whole, before improving to 1.5 per cent in 2014.

European economic sentiment index

10-year government bond yields in selected European economies

Considerable downside risks remain in the outlook for Western Europe. Financial markets are likely to become more volatile if there are setbacks to promised reforms and fiscal consolidation. Planned fiscal consolidation may also adversely affect economic growth more than is currently expected.

Over the medium term, economic growth in Western Europe is assumed to strengthen to 2.1 per cent in 2015, before easing to around 1.8 per cent a year toward 2018.

Non-OECD Asia

Economic growth in non-OECD Asia moderated in 2012, although it continued to remain strong. In Vietnam, real gross domestic product expanded by 5 per cent in 2012, down from 5.9 per cent in 2011. In Singapore, real gross domestic product expanded by 1.2 per cent in 2012, following growth of 4.9 per cent in 2011.

The easing of regional economic growth largely reflects weaker export performance as demand from China and OECD economies moderated. Because exports account for a relatively large share of economic activity in many Asian economies, declining export growth dampened regional industrial production, business investment and labour markets. In Taiwan, for example, the value of exports fell by 2.3 per cent in 2012, compared with an increase of 12.3 per cent in 2011, while growth in industrial production remained largely unchanged in 2012, after increasing 5 per cent in 2011.

Reflecting weakening growth rates, inflationary pressures eased in most economies through 2012. In Malaysia, consumer prices rose at a year-on-year rate of 1.2 per cent in December 2012, compared with a recent high of 2.7 per cent in January 2012. Similarly, in Singapore, inflation was 4.3 per cent in December, down from a recent high of 5.4 per cent in April 2012.

Looking forward, economic activity in non-OECD Asia is expected to strengthen, boosted by recovering exports in line with assumed stronger world economic growth. A weaker recovery in OECD economies than currently assumed would adversely affect regional export performance. For non-OECD Asia as a whole, economic growth is assumed to average 7.2 per cent in 2013 and 7.3 per cent in 2014.

Over the medium term, these economies will benefit if they continue to move to a more balanced growth strategy with a greater reliance on domestic demand. More balanced growth would also help address global trade and current account imbalances. Toward 2018 economic growth in the region is assumed to ease marginally to an annual rate of 7.2 per cent.

Economic growth in Asia

a ABARES assumption.

Economic prospects in Australia

Economic growth in Australia remained strong in the first half of 2012–13, with real gross domestic product increasing at a year-on-year rate of 3.1 per cent in the September quarter 2012, following growth of 3.8 per cent in the June quarter. Mining sector activity was the most significant contributor, adding 0.8 percentage points to economic growth in the September quarter. Household consumption was relatively strong, growing at a year-on-year rate of 3.3 per cent in the September quarter.

In the short term, economic activity is expected to remain robust, although some easing is expected. While household spending and demand for Australia’s commodities are expected to support economic growth, they are unlikely to offset weaker mining investment. In preparing this set of agricultural commodity projections, economic growth in Australia is assumed to average 2.8 per cent in 2013–14, following growth of 3 per cent in 2012–13. Over the medium term, the Australian economy is assumed to grow at a rate of around 3 per cent a year.

Australian economic indicators

a ABARES assumption. b Large business weighted average variable rate on credit outstanding.

Inflation

Inflationary pressures in Australia remain modest. The consumer price index rose year-on-year by 2.2 per cent in the December quarter 2012, compared with an increase of 2 per cent in the September quarter.

The most significant price rises in the December quarter were for domestic holiday travel and accommodation (up 6 per cent), automotive fuel (3 per cent) and rent (1 per cent). Partially offsetting these rises were price falls for vegetables (down 6 per cent), audio, visual and computing equipment (4 per cent) and pharmaceutical products (4 per cent).

Inflationary pressures in Australia are expected to remain modest, with the inflation rate assumed to average 2.5 per cent a year over the outlook period.

Short-term direction of the Australian dollar

The Australian dollar remained strong in the second half of 2012, both against the US dollar and on a trade-weighted basis. For the first seven months of 2012–13, the Australian dollar averaged around US104 cents and TWI 77.

In the short term, the Australian dollar is expected to remain strong. A number of reasons underpin this assessment. First, Australia’s economic performance is expected to remain relatively robust compared with other OECD economies. As a result, financial market sentiment should remain favourable toward the Australian dollar, supporting the Australian exchange rate against other currencies, including the US dollar.

Second, sizeable differences remain in interest rates between Australia and major world economies, which favours international investors holding Australian dollar denominated assets. Prime lending rates in Australia were around 5.5 per cent in January 2013, compared with rates of 3.3 per cent in the United States, 1.5 per cent in Japan and 1.9 per cent in Germany. With only gradual recoveries assumed for these economies, it is unlikely that their interest rates will increase significantly in the short term. For 2013–14 as a whole, prime lending rates in Australia are assumed to average around 5.5 per cent, higher than the average of 3.3 per cent assumed for the United States.

Another factor expected to support the Australian dollar is the movement in the terms of trade. Despite easing recently, the terms of trade remain close to historic highs. In the September quarter 2012, Australia’s terms of trade were 16 per cent higher than the level recorded for 2007–08, close to the 15 per cent appreciation of the Australian dollar against the US dollar over the same period. In coming years, an assumed improvement in world economic growth is expected to keep commodity prices at relatively high levels, which should provide support to the terms of trade and the Australian dollar.

In preparing this set of agricultural commodity projections, the Australian dollar is assumed to average US104 cents and TWI 78 in 2013–14, marginally higher than the assumption of US103 cents and TWI 77 for 2012–13.

Assumptions on the Australian dollar over the medium term

Over the medium term the Australian dollar is assumed to remain strong, with factors underpinning its strength likely to continue. While higher interest rates in major OECD economies are expected to place downward pressure on the Australian dollar, the need for fiscal consolidation, particularly in the United States, will likely weigh on financial market sentiment toward those country’s currencies. Unless policy measures are taken to significantly tighten fiscal policy in these economies, it is likely that favourable sentiment toward the Australian dollar will continue. The Australian dollar is therefore assumed to depreciate only gradually against the US dollar, to around parity by 2018.

While the Australian dollar is assumed to remain relatively strong over the next few years, significant volatility is possible, because changes in financial market sentiment can have a significant influence on exchange rate movements. For example, within the past year the Australian dollar was as low as US96 cents in early June 2012 and as high as US106 cents in mid January 2013. Consequently, it remains important for primary producers and exporters to manage the risks associated with fluctuations in the Australian exchange rate.

Australian exchange rate

Note:a ABARES assumption.

Key macroeconomic assumptions for Australia

unit

2010-11

2011-12

2012-13a

2013-14a

2015-16a

2016-17a

2017-18a

Economic growth

%

2.4

3.5

3.0

2.8

3.0

3.0

3.0

Inflation

%

3.1

2.4

2.5

2.5

2.5

2.5

2.5

Interest rates b

% pa

6.6

6.2

5.6

5.5

6.0

6.5

6.5

unit

2010-11

2011-12

2012-13a

2013-14a

2015-16a

2016-17a

2017-18a

– US$/A$

US$

0.99

1.03

1.03

1.04

1.04

1.01

1.00

unit

2010-11

2011-12

2012-13a

2013-14a

2015-16a

2016-17a

2017-18a

– for A$ c

index

74

76

77

78

78

76

74

a ABARES assumption. b Large business weighted average variable rate on credit outstanding. c Base: May 1970 = 100.

Sources: ABARES; Australian Bureau of Statistics; Reserve Bank of Australia

Outlook for Australian agricultural, fisheries and forestry exports

The total volume of farm production is forecast to increase by around 3.6 per cent in 2013–14, following a forecast decline of 5.8 per cent in 2012–13. The increase reflects a forecast rise in both crop and livestock production. Over the medium term, farm production is projected to rise gradually. By 2017–18 the index of farm production is projected to be 8.2 per cent higher than the level forecast for 2012–13.

The index of unit returns for Australian farm exports, in aggregate, is forecast to remain largely unchanged in 2013–14 after declining by 2.1 per cent in 2012–13. Higher world prices for cotton, beef, wool and dairy products are expected to be largely offset by lower world prices for wheat, rice, soybeans and sugar. Unit returns for farm exports are projected to decline gradually, in real terms, over the remainder of the outlook period.

Earnings from farm exports are forecast to be around $35.6 billion in 2013–14, marginally lower than the forecast $35.9 billion in 2012–13. Farm commodities for which export earnings are forecast to be higher in 2013–14 include barley (4 per cent), wine (7 per cent), beef and veal (2 per cent) and wool (17 per cent).

Export earnings for crops are forecast to be around $20.4 billion in 2013–14 compared with $21.5 billion in 2012–13. The export value of livestock and livestock products is forecast to increase by 5.4 per cent in 2013–14 to $15.2 billion.

Over the medium-term, the value of Australian farm exports is projected to be $33.7 billion in 2017–18 (in 2012–13 dollars), marginally higher than the average of $33.1 billion (also in 2012–13 dollars) in the five years to 2011–12.

For fisheries products, export earnings are forecast to be around $1.2 billion in 2013–14, largely unchanged from the forecast value in 2012–13. Higher export earnings are forecast in 2013–14 for pearls (11 per cent), abalone (10 per cent) and salmonids (13 per cent). Largely offsetting these rises are forecast falls for scallops (10 per cent), rocklobster (6 per cent) and prawns (5 per cent). Over the medium term to 2017–18 the value of Australian fisheries exports is projected to remain at around

$1.2 billion (in 2012–13 dollars).

Export earnings for forestry products are forecast to be around $2.4 billion in 2013–14, marginally higher than the forecast $2.3 billion in 2012–13. Higher export earnings are forecast in 2013–14 for sawnwood (17 per cent), woodchips (3 per cent) and paper and paperboard (4 per cent). Partially offsetting these rises are forecast falls for wood-based panels (3 per cent). Over the medium term to 2017–18 the value of Australian forestry exports is projected to remain at around $2.4 billion (in 2012–13 dollars).

In total, the value of Australian agricultural, fisheries and forestry exports is forecast to be around $39.1 billion in 2013–14, compared with the $39.4 billion forecast in 2012–13. In 2017–18, the value of Australia’s agricultural, fisheries and forestry exports is projected to be around $37.2 billion (in 2012–13 dollars).

Major indicators of Australia’s agriculture and natural resources based sectors

unit

2010-11

2011-12

2012-13f

2013-14f

2014-15f

2015-16f

2016-17f

2017-18f

Exchange rate

US$/A$

0.99

1.03

1.04

1.04

1.01

1.00

1.00

1.00

Australian export unit returns a

2010-11

2011-12

2012-13f

2013-14f

2014-15f

2015-16f

2016-17f

2017-18f

Farm

index

101.5

102.1

100.0

100.2

98.5

98.9

100.5

101.7

– real c

index

106.4

104.6

100.0

97.8

93.7

91.9

91.1

89.9

Value of exports

A$m

35 530

39 775

39 409

39 136

38 919

39 750

41 009

42 082

– real c

A$m

37 240

40 750

39 409

38 181

37 044

36 912

37 152

37 194

Farm b

A$m

31 807

36 318

35 930

35 554

35 238

35 960

37 101

38 072

– real c

A$m

33 338

37 209

35 930

34 687

33 540

33 393

33 612

33 650

Crops

A$m

17 311

21 584

21 502

20 354

19 617

19 812

20 320

20 876

– real c

A$m

18 144

22 113

21 502

19 857

18 671

18 397

18 409

18 451

Livestock

A$m

14 496

14 735

14 428

15 200

15 621

16 148

16 781

17 196

– real c

A$m

15 193

15 096

14 428

14 829

14 869

14 995

15 203

15 199

Forest and fisheries products

A$m

3 723

3 457

3 479

3 582

3 681

3 789

3 908

4 010

– real c

A$m

3 902

3 541

3 479

3 495

3 504

3 519

3 541

3 544

Forestry

A$m

2 474

2 229

2 299

2 384

2 467

2 543

2 612

2 687

– real c

A$m

2 593

2 283

2 299

2 326

2 348

2 362

2 366

2 375

Fisheries

A$m

1 249

1 228

1 180

1 198

1 215

1 246

1 296

1 323

– real c

A$m

1 309

1 258

1 180

1 169

1 156

1 157

1 174

1 169

Gross value of

2010-11

2011-12

2012-13f

2013-14f

2014-15z

2015-16z

2016-17z

2017-18z

Farm

A$m

46 914

48 992

46 780

47 653

47 730

48 553

49 796

50 943

– real c

A$m

49 172

50 193

46 780

46 491

45 430

45 086

45 113

45 026

Crops

A$m

25 876

27 767

27 099

27 280

26 923

27 365

28 100

28 924

– real c

A$m

27 121

28 449

27 099

26 615

25 626

25 411

25 457

25 565

Livestock

A$m

21 038

21 224

19 682

20 372

20 807

21 189

21 696

22 019

– real c

A$m

22 051

21 745

19 682

19 875

19 804

19 676

19 656

19 461

Forestry and fisheries

A$m

4 062

4 082

4 207

4 428

4 624

4 861

5 154

5 245

– real c

A$m

4 258

4 182

4 207

4 320

4 401

4 514

4 669

4 635

Forestry

A$m

1 832

1 707

1 807

1 945

2 074

2 243

2 450

2 473

– real c

A$m

1 920

1 749

1 807

1 897

1 974

2 083

2 220

2 186

Fisheries

A$m

2 231

2 374

2 400

2 483

2 550

2 617

2 704

2 771

– real c

A$m

2 338

2 432

2 400

2 422

2 427

2 430

2 449

2 450

Volume of production e

unit

2010-11

2011-12

2012-13f

2013-14f

2014-15f

2015-16f

2016-17f

2017-18f

Farm

index

114.2

120.4

113.4

117.4

118.8

120.1

121.5

122.7

– crops

index

126.2

138.2

122.9

129.2

129.8

130.5

131.5

133.5

– livestock

index

100.6

101.4

102.8

104.4

106.7

108.4

110.2

110.6

Forestry

index

122.7

112.3

118.3

125.6

132.7

141.7

153.2

153.4

Production area and livestock

unit

2010-11

2011-12

2012-13f

2013-14f

2014-15f

2015-16f

2016-17f

2017-18f

Crop area grains and oilseeds

‘000 ha

23 946

23 824

23 612

23 970

23 817

23 940

24 054

24 185

Forestry plantation area

‘000 ha

2 017

na

na

na

na

na

na

na

Sheep

Million

73.1

76.0

76.4

77.5

78.5

79.4

80.2

80.1

Cattle

million

28.5

29.1

28.8

28.6

28.5

28.5

28.6

28.6

Farm sector

2010-11

2011-12

2012-13f

2013-14f

2014-15z

2015-16z

2016-17z

2017-18z

Net cash income g

A$m

15 343

16 507

14 565

14 630

13 438

12 840

12 845

12 721

– real c

A$m

16 081

16 912

14 565

14 273

12 791

11 923

11 637

11 243

Net value of farm production

A$m

10 399

11 435

9 359

9 284

7 949

7 204

7 058

6 779

– real

A$m

10 900

11 715

9 359

9 058

7 566

6 690

6 394

5 991

Farmers’ terms of trade

index

96.4

94.2

94.7

92.3

88.9

87.5

87.3

86.8

a Base: 2012–13 = 100. b Series revised back to 1988–89. c In 2012–13 Australian dollars. d For a definition of the gross value of farm production see Table 13. e Chain weighted basis using Fishers’ ideal index with a reference year of 1997–98 = 100. f ABARES forecast. g Gross value of farm production less increase in assets held by marketing authorities and less total cash costs. h Gross value of farm production less total farm costs. z ABARES projection. na Not available. Sources: ABARES; Australian Bureau of Statistics.

Major Australian agricultural, fisheries and forestry commodity exports

Wheat, cotton, sugar, rice and oilseeds are world indicator prices in US$. All other commodities are export unit returns or domestic prices in A$. For export value, annual forecasts are the sum of quarterly forecasts. As a result, annual export values do not necessarily reflect variations in export volumes, world prices and exchange rates.

Note: f ABARES forecast.

Impact of natural disasters in early 2013 on agricultural production

Natural disasters, including bushfires, storms and floods, caused damage in many parts of Australia in early 2013.

The joint Commonwealth–State Natural Disaster Relief and Recovery Arrangements (NDRRA) provide a range of financial assistance measures to natural disaster declared areas in each state. At 14 February 2013, NDRRA assistance had been made available for 53 Queensland and 19 New South Wales local government areas (LGAs) affected by tropical cyclone Oswald and associated rainfall and flooding. It is available to 71 LGAs in New South Wales, eight in Victoria, one in South Australia and six in Tasmania as a result of bushfires. Five LGAs in Western Australia are eligible for NDRRA assistance as a result of thunderstorms.

Floods following tropical cyclone Oswald

Flooding across many areas of Queensland was severe, but damage was particularly concentrated around Bundaberg, Mundubbera and Gayndah. At 14 February 2013, NDRRA assistance had been made available to the following 53 flood-affected LGAs across Queensland:

Aurukun, Banana, Brisbane, Bundaberg, Burdekin, Burke, Cairns, Carpentaria, Cassowary Coast, Central Highlands, Cherbourg, Cloncurry, Cook, Doomadgee, Etheridge, Fraser Coast, Gladstone, Gold Coast, Goondiwindi, Gympie, Hinchinbrook, Hope Vale, Ipswich, Isaac, Kowanyama, Lockhart River, Lockyer Valley, Logan, Mackay, Mapoon, McKinlay, Moreton Bay, Mornington, Napranum, North Burnett, Northern Peninsula, Palm Island, Pormpuraaw, Redland, Rockhampton, Scenic Rim, Somerset, South Burnett, Southern Downs, Sunshine Coast, Tablelands, Toowoomba, Torres, Torres Strait Island, Western Downs, Whitsunday, Wujal Wujal and Yarrabah.

In New South Wales flooding was concentrated on the north and central coast. At 14 February 2013, NDRRA funding had been made available to the following 19 LGAs in New South Wales:

Ballina, Bellingen, Byron, Clarence Valley, Coffs Harbour, Glen Innes Severn, Gloucester, Great Lakes, Inverell, Kempsey, Kyogle, Lismore, Moree Plains, Nambucca, Port Macquarie–Hastings, Richmond Valley, Tenterfield, Tweed and Upper Hunter.

According to the 2011 Census, the gross value of agricultural production in the LGAs eligible to receive NDRRA funding was around $9.5 billion, which was 21 per cent of the total gross value of agricultural production in Australia in 2010–11. Cattle and calves contributed most to the gross value of agricultural production in these LGAs at $2.54 billion. This amounted to 32 per cent of the value of cattle and calves produced in Australia. Vegetables were the second most important agricultural product in these LGAs and amounted to a further $1.09 billion, 33 per cent of the gross value of vegetables produced in Australia in 2010–11. Fruit was the third most important agricultural product in these LGAs. It contributed $1.02 billion to the gross value of agricultural production, accounting for 25 per cent of the gross value of fruit produced in Australia. All of Australia’s sugar production, valued at $970 million, was produced in the LGAs eligible to receive NDRRA funding.

continued...

Impact of natural disasters in early 2013 on agricultural production continued

Impact on agricultural production in flood-affected areas

The floods caused individual producers hardship in affected areas where they caused damage to crops, livestock and farm assets. At the same time, other parts of Queensland and New South Wales will benefit from the positive effects of the rainfall on crops and pastures.

Around 33 per cent of Australia’s vegetable production occurs in the flood-damaged areas of Queensland and New South Wales, much of it on low lying flood-prone land. Crops in the Bundaberg, Lockyer and Scenic Rim regions are among those to have flood damage.

Damage to citrus trees, packing sheds and other infrastructure such as irrigation equipment was reported at Gayndah and other fruit-growing areas on the Burnett. About 60 per cent of the gross value of Australia’s mandarins and 40 per cent of lemons were produced in the Wide Bay–Burnett Statistical Division in 2010–11, with most production concentrated around Gayndah and Mundubbera. Despite heavy losses to some individual growers, preliminary assessment puts the crop damage in this region at around 10 to 15 per cent of production ($8 to $12 million).

Road closures due to the floods prevented some fresh produce, including fruit, vegetables and milk, getting to market.

Some sorghum growing regions in southern Queensland and northern New South Wales were flooded and some early sown crops were reported to have been damaged by high winds. In northern New South Wales, some late-sown sorghum crops will benefit from the rainfall but most early sown crops are too close to harvest for any further growth to occur. The rain came too late to facilitate further planting in New South Wales. However, in central Queensland some producers were able to take advantage of the moisture to plant additional area to grain sorghum. The rainfall will benefit development of late-sown crops.

There were reports of limited damage to cotton crops in the Biloela region of Queensland. Overall, the rain is likely to benefit cotton producers by replenishing water supplies for irrigation. The EJ Beardmore Dam at St George, which on 23 January was at 13 per cent capacity, was full on 6 February.

Some limited damage to sugar cane was reported in the Bundaberg, Maryborough, Mackay, Plane Creek and Mossman regions. However, the rain is seen as benefiting cane crops, with yield increases likely.

There were reports of livestock losses in Queensland and New South Wales and some dairy production suffered disruption to transport and electricity supplies.

Bushfires

All states suffered bushfire damage in January. The fires caused devastating damage in some areas, with destruction of homes and other structures, livestock, crops, fodder and pasture. However, much of the area burnt was bush and forest; damage to farmland was limited to small areas. Harvesting of the 2012–13 winter cereal crops was largely completed before the fires started, and the loss of agricultural production has been limited.

ontinued...

Impact of natural disasters in early 2013 on agricultural production continued

Gross value of agricultural production, 2010–11, in LGAs eligible to receive NDRRA funding following tropical cyclone Oswald

Industry

Production in flood affected LGAs $m

Proportion of Australia’s value of production %

Cattle and calves

2 539

32

Vegetables for human consumption

1 092

33

Fruit

1 016

25

Sugar cane

970

100

Cotton

931

49

Cereals for grain

916

9

Poultry

474

23

Milk

372

9

Nurseries and cut flowers and cultivated turf

349

28

Pigs

232

25

Eggs

159

28

Legumes for grain

128

13

Hay

117

11

Wool

46

2

Vegetables for seed

32

25

Sheep and lambs

31

1

Oilseeds

27

2

Goats

11

11

Total

9 476

21

For more information about Natural Disaster Relief Arrangements go to disasterassist.gov.au.

Agriculture

(chapter title page)

Crops

Grains and oilseedsOutlook to 2017–18

Beth Deards, David Mobsby and Neil Thompson

Short-term outlookPrices to remain firm in 2013–14

The world wheat indicator price (US hard red winter, fob Gulf) is forecast to fall by 12 per cent in 2013–14 to US$320 a tonne, reflecting a strong increase in world wheat production and an increase in world stocks. Despite this forecast decline, the wheat indicator price is expected to remain above the average of US$292 a tonne over the five years to 2011–12.

The world coarse grains indicator price (US corn, fob Gulf) is forecast to decrease by 11 per cent to US$281 a tonne in 2013–14. The world indicator price for barley (French Rouen feed) is forecast to fall by 12 per cent to US$271 a tonne.

These price falls reflect higher coarse grains production as producers respond to high prices in 2012–13. However, despite rising production, increased consumption and low opening stocks will result in the prices remaining above the five-year averages to 2011–12 of US$217 and US$236 for corn and barley, respectively.

The world oilseeds indicator price (soybeans, cif Rotterdam) is forecast to fall by 9 per cent in 2013–14 to US$550 a tonne. This forecast decline reflects an increase in world soybean supplies, driven by forecast record production in Latin America and a recovery in production in the United States.

The world canola indicator price (cif Hamburg) is forecast to decline by 4 per cent in 2013–14 to US$605 a tonne, driven by increased supplies available for export as a result of higher canola production in Canada.

The price forecasts for coarse grains and oilseeds in 2013–14 depend on higher production being realised in the United States from the drought-affected 2012–13 season. However, the possibility of lower US production due to adverse seasonal conditions in major growing regions for corn and soybeans presents an upside risk to the forecasts of world indicator prices for coarse grains and oilseeds in 2013–14. In contrast, wheat production in the United States is forecast to decline in 2013–14, based on the current forecast of seasonal conditions (see box).

World grains and oilseeds prices

Note: z ABARES projection.

World grains and oilseeds production to rise in 2013–14Wheat

World wheat production is forecast to increase by 5 per cent in 2013–14 to almost 690 million tonnes, largely driven by forecast higher yields in the Black Sea region and the European Union. Additionally, producers are estimated to have increased the area planted to wheat in response to favourable prices at the time of planting. Planting of northern hemisphere 2013–14 winter wheat crops began in the northern autumn of 2012 when prices averaged around US$374 a tonne.

Wheat production

Note: f ABARES forecast.

Wheat production in the Black Sea region, particularly the Russian Federation and Ukraine, is forecast to rebound strongly in 2013–14, following reduced yields in the previous season because of persistent hot and dry conditions. Production in the Russian Federation is forecast to increase by 41 per cent to around 55 million tonnes. Improved seasonal conditions have underpinned a forecast return to average yields and the area planted to wheat has increased in response to favourable world prices. Similarly, production in Ukraine is forecast to rise by 27 per cent to around 20 million tonnes, while in Kazakhstan wheat production is forecast to increase by 64 per cent to around 16 million tonnes.

In the European Union, wheat production is forecast to rise by 5 per cent in 2013–14 to around 138 million tonnes. This increase largely reflects a forecast improvement in yields, following adverse seasonal conditions last season, and a modest rise in area planted.

Wheat production in Canada is forecast to increase by 3 per cent in 2013–14, to around 28 million tonnes.

Wheat production in Argentina is forecast to increase by 35 per cent in 2013–14 to around 14 million tonnes. This forecast increase is largely driven by a 25 per cent increase in area and an expected modest rise in yields.

Of the major exporters, wheat production is forecast to fall by 7 per cent in the United States in 2013–14 to around 57 million tonnes. Despite a 1 per cent increase in area planted to winter wheat, which accounts for around 70 per cent of total US wheat production, the assumed continuation of drought conditions in major producing regions is expected to result in a high abandonment rate and lower yields.

In China, wheat production is forecast to be around 121 million tonnes in 2013–14, largely unchanged from the previous season.

In India, the world’s third largest producer of wheat after the European Union and China, wheat production is forecast at around 90 million tonnes in 2013–14. If realised, this will be the second consecutive year of above average production in India, largely reflecting the effect of assumed favourable seasonal conditions.

Drought conditions in the United States

Hot and dry conditions have persisted in the major cropping regions of the United States since mid 2012. While conditions have improved in the key corn and soybean growing regions and are expected to continue improving, soil moisture levels are expected to remain low into April 2013. Beyond April, average seasonal conditions have been assumed but, if they do not eventuate, crop production in 2013–14 particularly for wheat, could be significantly affected.

At the beginning of February 2013 around 57 per cent of the United States, excluding Alaska and Hawaii, was classified as being in moderate to extreme drought. The High Plains (which includes Colorado, Nebraska, Kansas and North and South Dakota) and South (which includes Texas and Oklahoma) regions are two of the most affected, with moderate to extreme drought affecting 92 per cent and 56 per cent of the regions, respectively. Combined, these regions account for around 55 per cent of

US wheat production.

Continued

Drought conditions in the United States continued

Conditions in the Midwest (which includes Iowa, Illinois, Minnesota, Indiana and Ohio), which accounts for around 62 per cent of corn and 66 per cent of soybean production, have steadily improved since mid 2012. In early February 2013 around 48 per cent of the region was in moderate to extreme drought, down from a high of 70 per cent in July 2012.

According to the National Oceanic and Atmospheric Administration’s three-month drought outlook (issued on 7 February 2013), improvements in conditions are forecast in the Midwest through to April 2013. In contrast, drought conditions are expected to persist in major winter wheat growing regions. Rainfall is predicted to be below average in the South and average in the High Plains, while temperatures across both regions are expected to be above average.

Recent indicators suggest that the condition of the 2013–14 winter wheat crop is worsening. In Kansas, winter wheat rated as poor to very poor has increased from 25 per cent in late November to 39 per cent in late January. This compares with an average of around 20 per cent in the same period over the five years to 2012. Given the relatively poor condition of the crop and forecast unfavourable conditions in coming months, production is expected to be affected.

Kansas winter wheat condition, end of January

Note:Source: National Agricultural Statistics Service, United States Department of Agriculture

For corn and soybeans, planting is expected to occur during April and May 2013. Recent improvements in conditions in the Midwest and forecast above average rainfall in coming months are expected to improve soil moisture levels. However, parts of Iowa, the largest corn and soybean producing state, are expected to remain in drought. Beyond April, the National Oceanic and Atmospheric Administration forecasts that average seasonal conditions are likely for most parts of the soybean and corn growing regions.

Coarse grains

World coarse grains production is forecast to rise by 9 per cent in 2013–14 to 1.2 billion tonnes with world corn and barley production forecast to increase.

Coarse grains production

Note:f ABARES forecast.

Barley

World barley production is forecast to rise by 6 per cent to 138 million tonnes, reflecting forecast large production increases in the Black Sea region.

In the Russian Federation and Ukraine, barley production is forecast to rise by 17 per cent and 31 per cent in 2013–14 to 16 million tonnes and 9 million tonnes, respectively. This reflects a recovery in yields from the drought-affected crop of 2012–13 and an increase in the planted area in both countries.

In the European Union, barley production is forecast to rise by 1 per cent in 2013–14 to 55 million tonnes, where more favourable seasonal conditions than the previous season are expected to result in improved yields. The area planted to barley is forecast to remain largely unchanged from the previous season.

In Argentina, barley production is forecast to rise by 4 per cent in 2013–14 to 5.7 million tonnes, reflecting an increase in planted area because of expected favourable returns. Argentina has become an increasingly significant producer of barley over recent years, with producers switching to barley because of higher returns compared with wheat.

In Canada, production is forecast to rise by 14 per cent in 2013–14 to 9.0 million tonnes, reflecting an increase in planted area due to favourable returns to producers.

Corn

World corn production is forecast to increase by 11 per cent to 944 million tonnes, predominantly reflecting a forecast recovery in US production.

In the United States, corn production is forecast to increase by 30 per cent in 2013–14 to 352 million tonnes. This reflects an expected return to average seasonal conditions in the major corn growing regions and an increase in yields from the drought-affected crop of 2012–13. Additionally, the area planted to corn is forecast to increase by 2 per cent in response to recent high prices.

In China, high domestic prices and the expectation of continued high levels of government support for grain production are expected to encourage producers to increase the area planted to corn. However, following record production in 2012–13, an assumed return to average yields is forecast to result in a 2 per cent decline in production to 204 million tonnes in 2013–14.

In Argentina, the area planted to corn is forecast to increase by 9 per cent in 2013–14 largely in response to favourable prices. A return to average yields from the forecast highs of 2012–13 is expected to result in a 6 per cent increase in production to 28 million tonnes.

In Brazil, corn production is forecast to increase by 5 per cent in 2013–14 to 75 million tonnes, driven by an increase in the area planted to the second corn crop. The second corn crop may be planted after early sown soybean crops are harvested.

In Ukraine, an increase in area planted to spring barley is forecast to result in lower corn area. However, corn production is forecast to increase by 4 per cent to 21 million tonnes in 2013–14, reflecting increased yields.

Oilseeds

World oilseeds production is forecast to increase by 3 per cent in 2013–14 to 478 million tonnes, driven by a forecast rise in production of canola, soybeans and sunflower seed.

Canola

World canola production is forecast to increase by 5 per cent in 2013–14 to 62 million tonnes, reflecting record production in Canada.

Canadian canola production is forecast to rise by 13 per cent in 2013–14 to a record 15.2 million tonnes. This increase reflects a 13 per cent recovery in yields from last season when hot conditions during summer adversely affected canola production. The area planted to canola in Canada is forecast to remain largely unchanged from the record area planted last year, encouraged by favourable canola prices.

Rapeseed production in the European Union is forecast to increase by 3 per cent in 2013–14 to 19.6 million tonnes, largely driven by an estimated 2 per cent rise in planted area. While unfavourable autumn weather caused a decline in the area planted to rapeseed in France and the United Kingdom, this is estimated to be more than offset by an increase in the area planted in Germany, Poland, Denmark, Bulgaria and Romania. The average yield is forecast to increase marginally in 2013–14, following dry conditions in the previous season.

Soybeans

World soybean production is forecast to rise by 5 per cent in 2013–14 to a record 279 million tonnes, which reflects forecast record production in Latin America and recovery in US production.

In Latin America, the 2012–13 harvest is underway with soybean production forecast to increase in Brazil and Argentina. In response to favourable prices during the planting window, producers increased the area planted to soybeans in Brazil and Argentina by 9 per cent and 6 per cent, respectively, to 27 million hectares and 19.7 million hectares. The average yield is forecast to increase significantly in both countries following the drought-affected crop of 2011–12. In 2012–13 soybean production is forecast to increase in Brazil and Argentina by 25 per cent and 32 per cent, respectively, to 82.5 million tonnes and 52.5 million tonnes.

In the 2013–14 season, soybean production in Brazil and Argentina is forecast to increase by 2 per cent and 5 per cent, respectively, to record levels of 84.5 million tonnes and 55 million tonnes. This forecast increase is largely driven by an increase in the area planted to soybeans in response to expected favourable soybean prices. Additionally, yields are forecast to be marginally higher, reflecting increased use of genetically modified seeds.

Soybean production in the United States is forecast to rise by 8 per cent in 2013–14 to 88.7 million tonnes. This increase is primarily driven by a forecast recovery in the average yield, with seasonal conditions expected to return to average in the major soybean growing regions. The area planted to soybeans in the United States is forecast to remain largely unchanged from the previous season.

Sunflower seed

World production of sunflower seed is forecast to increase by 9 per cent in 2013–14 to just over 38 million tonnes. Seasonal conditions are assumed to improve from the unfavourable conditions experienced in many key growing regions in 2012–13.

In Argentina, the 2012–13 sunflower seed harvest is underway and production is forecast to increase marginally to 3.4 million tonnes. This forecast increase reflects an estimated 1 per cent rise in the area planted to sunflowers. Additionally, yields are forecast to be similar to the drought-affected crop of 2011–12, which reflects crop development this season being adversely affected by excessive rain and wind.

In 2013–14 sunflower seed production in Argentina is forecast to increase by 3 per cent to 3.5 million tonnes. This forecast increase is largely driven by a forecast recovery in the average yield, with seasonal conditions in the sunflower growing region assumed to be more favourable than the previous season.

Sunflower seed production in the Russian Federation and Ukraine is forecast to increase by 8 per cent and 13 per cent in 2013–14, respectively, to 8.3 million tonnes and 9.5 million tonnes. Producers are forecast to increase the area sown to sunflowers in response to relatively strong oilseed prices, which partly reflect low closing stocks. The area planted to sunflowers is forecast to increase by 5 per cent in the Russian Federation and 1 per cent in Ukraine to 6.9 million hectares and 6.3 million hectares, respectively. Yields are assumed to increase from last season when production was adversely affected by hot seasonal conditions.

In the European Union, sunflower seed production is forecast to increase by 19 per cent in 2013–14 to 8.1 million tonnes, largely reflecting a forecast 17 per cent increase in the average yield. Last season, yields were adversely affected by above average temperatures and below average rainfall.

World oilseeds production

Note:f ABARES forecast.

Crush

World oilseeds crush is forecast to increase by 3 per cent in 2013–14 to 406 million tonnes. Crush of soybeans, canola and sunflower seed are forecast to increase, driven by higher production and continued strong demand for vegetable oils and protein meals.

Soybean crush is forecast to rise by 5 per cent in 2013–14 to almost 244 million tonnes. China will continue to be the largest consumer of soybeans, with domestic crush forecast to increase by 2 per cent to 67 million tonnes.

Canola crush is forecast to increase by 2 per cent in 2013–14 to 59 million tonnes. Canola crush in Canada is forecast to rise by 2 per cent to 6.5 million tonnes, supported by higher domestic demand for canola oil from an extension of the 2 per cent biodiesel mandate to eastern parts of the country in early 2013.

Sunflower seed crush is forecast to rise by 7 per cent in 2013–14 to 35 million tonnes, driven by higher crush in the Black Sea region and the European Union. The European Union is forecast to increase sunflower seed crush by 15 per cent to 6.9 million tonnes, supported by higher domestic production and expanded crush capacity in Hungary, Romania and Bulgaria.

ConsumptionWheat consumption to rise

World consumption of wheat is forecast to increase marginally in 2013–14 to 686 million tonnes, largely driven by increased human consumption. Consumption of feed wheat is forecast to rise marginally to 133 million tonnes in 2013–14 in response to forecast lower world prices, but remain below the record use of 146 million tonnes in 2011–12.

US ethanol production and feed to boost coarse grains consumption

World consumption of coarse grains is forecast to increase by 5 per cent in 2013–14 to 1.2 billion tonnes. World feed consumption of coarse grains is forecast to increase by 5 per cent in 2013–14 to 708 million tonnes, supported by falling grains prices and rising livestock production. Food, seed and industrial use of coarse grains is forecast to increase by 6 per cent in 2013–14 to around 502 million tonnes, led by a recovery in US ethanol production.

Coarse grains consumption

Note: f ABARES forecast.

World corn consumption is forecast to rise by 7 per cent in 2013–14 to 932 million tonnes, reflecting increases in world feed consumption and US ethanol production. A step up of mandated ethanol blending in the United States is forecast to contribute to a recovery of US ethanol production in 2013–14. The Renewable Fuel Standard requires the blending of 63 billion litres of biofuel into transportation fuel in 2013 (accounting for around 5 per cent of total US transportation fuel consumption) and 69 billion litres in 2014, of which 52 billion litres and 55 billion litres, respectively, can be sourced from corn-derived ethanol.

Oilseeds consumption driven by record crush

World oilseeds consumption is forecast to increase by 3 per cent in 2013–14 to 474 million tonnes. This increase is driven by a rise in oilseeds crush, reflecting increased demand for vegetable oils and protein meals.

World vegetable oil consumption is forecast to rise by 3 per cent in 2013–14 to 161 million tonnes, reflecting consumption growth in developing countries, particularly China and India, and industrial demand. World industrial use of vegetable oils is forecast to increase by 2 per cent in 2013–14 to 37 million tonnes, supported by higher biodiesel mandates in several countries, including the United States and Thailand. In September 2012 the US Government ruled that biodiesel blending must increase by 28 per cent in 2013 to 1.28 billion gallons. This increase in demand is likely to be met by higher domestic production of biodiesel following reinstatement of the US$1 per gallon biodiesel tax credit in January 2013.

World protein meal consumption is forecast to increase by 4 per cent in 2013–14 to almost 272 million tonnes. China will continue to be the largest consumer of protein meals, reflecting strong demand for feed from the livestock sector. As China recently banned protein meal imports from India, increased Chinese consumption is likely to be at least partly met by higher domestic production.

World consumption of vegetable oils

f ABARES forecast.

World trade to rise on increasing supply

World trade in wheat is forecast to increase by 6 per cent in 2013–14 to

138 million tonnes. Lower wheat prices combined with assumed stronger economic activity in developing economies is expected to encourage higher purchases of wheat. A significant rise in exports from some major exporters, particularly in the Black Sea region, is expected to more than offset lower exports from Australia, Canada, the European Union and the United States.

World coarse grains trade is forecast to increase by 17 per cent in 2013–14 to 136 million tonnes, driven by a recovery in coarse grains production in major exporting countries, particularly in the United States.

World barley trade is forecast to rise by 7 per cent to 19 million tonnes. Increases in barley exports are forecast for several major exporting countries in 2013–14, including the Russian Federation, Ukraine, Argentina and Canada. Demand for feed barley imports is forecast to remain strong in Saudi Arabia—the world’s largest barley importer—and other Middle Eastern countries, reflecting growing demand from expanding livestock production.

Wheat exports

f ABARES forecast.

World corn trade is forecast to increase by 21 per cent in 2013–14 to 106 million tonnes. A 30 per cent increase in US corn production in 2013–14 is expected to lead to a recovery in US corn trade, with exports forecast to rise by 54 per cent to 45 million tonnes. Corn exports from Argentina are forecast to rise by 3 per cent to 19.5 million tonnes, reflecting higher supplies available for export. In Brazil, despite a forecast 3 million tonne increase in production, growing domestic demand from the livestock sector will result in a forecast rise in exports of only 1 million tonnes to 18.5 million tonnes. On the demand side, China is expected to double its corn imports to 4 million tonnes to meet rising domestic demand for corn from its expanding livestock sector.

World trade in oilseeds is forecast to rise by 5 per cent in 2013–14 to almost 120 million tonnes, reflecting increased production of all three major oilseeds. World trade in soybeans is forecast to achieve the highest growth rate of 6 per cent, rising to 103 million tonnes. This forecast rise is primarily driven by continued strong demand from China, which is forecast to import a record 65 million tonnes of soybeans in 2013–14. World trade in canola is forecast to increase by 5 per cent in 2013–14 to 11.3 million tonnes, largely as a result of increased imports from the European Union and China. World trade in sunflower seeds is forecast to rise by 2 per cent in 2013–14 to 1.6 million tonnes.

World stocks to rise

World wheat closing stocks are forecast to increase by 1 per cent in 2013–14 to 176 million tonnes. Stocks in most major producers are expected to remain largely unchanged, with the exception of the Russian Federation, where they are forecast to rise by 30 per cent, albeit from a low base. The stocks-to-use ratio of wheat is forecast to remain largely unchanged at 25.6 per cent at the end of 2013–14. This compares with an average of 27.5 per cent over the five years to 2011–12

World coarse grains stocks are forecast to increase by 8 per cent in 2013–14 to 155 million tonnes. World corn stocks are forecast to increase by 10 per cent to 120 million tonnes, supported by a sharp recovery in US corn production. World barley stocks are forecast to increase by 5 per cent to 21 million tonnes.

The stocks-to-use ratio of barley is forecast to remain largely unchanged at 13.7 per cent, and the ratio for corn is forecast to rise by around half a percentage point to 12.9 per cent. This compares with an average of 12.8 per cent for barley and 17 per cent for corn, over the five years to 2011–12.

World closing stocks of oilseeds are forecast to increase by 7 per cent in 2013–14 to 72 million tonnes and the stocks-to-use ratio is forecast to rise to just over 15 per cent, compared with an average of 16.1 per cent over the five years to 2011–12. World soybean stocks are forecast to rise by 6 per cent to 62.9 million tonnes, driven by record soybean production. Following a significant decline in 2012–13, canola and sunflower seed stocks are forecast to increase by 11 per cent and 18 per cent, respectively, to 3.2 million tonnes and 1.7 million tonnes in 2013–14.

AustraliaWheat production to increase in 2013–14

Australian wheat production is forecast to increase by 13 per cent to around 25 million tonnes in 2013–14. This forecast increase reflects partly improved yields following the generally dry conditions in the 2012–13 growing period, particularly in Western Australia. Additionally, the area planted to wheat is forecast to increase by 4 per cent to 13.8 million hectares in response to expected favourable prices.

Australian grain and oilseeds production

f ABARES forecast.

Australian wheat exports are forecast to decline by 5 per cent in 2013–14 to around 21 million tonnes. Despite the forecast increase in production, a reduction in stock drawdowns, which are supporting export volumes in 2012–13, are expected to offset the effect of higher production. The value of exports is forecast to fall by 8 per cent to $6.6 billion, reflecting forecast lower world prices.

In Australia, the total area planted to coarse grains is forecast to rise by 2 per cent in 2013–14 to 5.6 million hectares, with producers forecast to respond to favourable coarse grains prices. Combined with a recovery in yields, total coarse grains production is forecast to rise by 13 per cent to 12.1 million tonnes.

The area sown to barley is forecast to rise by 3 per cent in 2013–14 to 4 million hectares. Production is forecast to rise by 11 per cent to 7.8 million tonnes, reflecting the increase in area and a recovery in yields. The area planted to grain sorghum is forecast to rise by 8 per cent in 2013–14 to 622 000 hectares, largely reflecting an assumed return to favourable seasonal conditions compared with the hot and dry conditions which prevented plantings in 2012–13.

Exports of coarse grains are forecast to increase by 4 per cent in 2013–14 to 6.5 million tonnes. The value of coarse grains trade is expected to increase by 2 per cent to $1.9 billion, of which barley exports are forecast to fall by 2 per cent to $1.5 billion.

The area planted to canola is forecast to decline by 11 per cent in 2013–14 to 2.1 million hectares, following a record planted area in the previous season. Low soil moisture profiles in most states and favourable prices for competing grains are making canola planting less attractive to producers. Assuming average yields, Australian canola production is forecast to decline by 5 per cent in 2013–14 to 2.9 million tonnes. The value of exports is forecast to decline by 13 per cent to $1.25 billion in 2013–14, reflecting an 11 per cent decline in export volume to just over 2.2 million tonnes.

Medium-term outlookPrices to remain above historical averages

Over the outlook period, increasing demand for grains and oilseeds is expected to be driven by a growing world population, increasing urbanisation and higher incomes. Given higher expected demand for grains and oilseeds and forecast production, stocks are expected to grow, but only slowly, over the outlook period. This will provide support for prices of grains and oilseeds, which are expected to remain above their long-term averages.

Over the projection period, the world wheat indicator price (US hard red winter, fob Gulf) is projected to ease, declining in real terms from US$362 in 2012–13 to US$260 in 2017–18 (in 2012–13 dollars). Similarly, the world coarse grains indicator price (US corn, fob Gulf) is projected to fall in real terms from US$315 a tonne in 2012–13 to US$245 a tonne in 2017–18 (in 2012–13 dollars). The world oilseeds indicator price (soybeans, cif Rotterdam) is projected to fall in real terms from US$605 a tonne in 2012–13 to US$494 a tonne in 2017–18 (in 2012–13 dollars).

Consumption

World wheat consumption is projected to rise by an average of 1 per cent a year to 726 million tonnes in 2017–18. Consumption of wheat as food, which accounts for around 70 per cent of total wheat consumption, is expected to increase in line with population growth over the projection period, reaching 492 million tonnes in 2017–18.

World coarse grains consumption is project to rise by 2 per cent a year to 1.3 billion tonnes in 2017–18. The key driver behind this growth is an increase in demand for coarse grains as an input into livestock production.

World oilseeds consumption is projected to rise by an average of 3 per cent a year over the outlook period to reach 527 million tonnes in 2017–18. This rise largely reflects projected higher crush of oilseeds, driven by increasing consumption of vegetable oils and protein meals. World oilseeds crush is forecast to increase by 11 per cent over the outlook period to reach 451 million tonnes in 2017–18.

World consumption of grains and oilseeds

f ABARES forecast. z ABARES projection.

Emerging economies to drive feed demand

Over the projection period, growth in feed consumption of grains and oilseeds is projected to be largely driven by developing economies, reflecting faster growth of livestock industries in those economies compared with developed countries. Rising incomes in developing economies are expected to drive substitution from cereals to meat and dairy products.

World feed consumption of coarse grains is projected to increase by an average of 2 per cent a year to 774 million tonnes by 2017–18. Large increases in feed consumption of corn are expected in Asia and Latin America, while feed barley consumption is expected to grow strongest in the Russian Federation, the Middle East and North Africa. Similarly, global consumption of protein meals is projected to increase by an average of 3 per cent a year over the outlook period to 301 million tonnes, while wheat used for feed is projected to rise by 4 per cent a year to 150 million tonnes in 2017–18.

India’s demand for vegetable oils to increase

Global consumption of vegetable oils is projected to increase by an average of 3 per cent a year over the outlook period to 184 million tonnes in 2017–18, driven by strong industrial demand and increasing consumption of edible vegetable oils. While per capita consumption of edible vegetable oils in developed countries is projected to remain relatively unchanged over the outlook period, demand is expected to increase in developing countries, particularly in Asia. India is the third largest consumer of vegetable oils and over the past decade domestic consumption has grown by more than 70 per cent. Although India is a significant producer of vegetable oils, domestic demand outweighs production and almost 60 per cent of consumption is met by imports. However, India’s per capita consumption of vegetable oils is still well below the world average. Over the outlook period, consumption of vegetable oils in India is projected to rise faster than domestic production, requiring increased imports to satisfy domestic demand.

Declining biofuel growth to slow industrial demand

Demand for industrial uses of vegetable oils (primarily for producing biodiesel) is projected to grow over the outlook period but at a slower rate than in previous years when increasing demand was driven by implementation of biofuel mandates. The European Union is the largest consumer of biodiesel in the world, followed by Malaysia, Indonesia, the United States and Brazil.

Further potential changes to biofuel mandates may also limit future growth in the industrial demand for vegetable oils. In October 2012, for example, the European Commission proposed policy changes to the current renewable fuel target of 10 per cent of transportation fuel by 2020. Specifically, the European Commission proposed to limit the amount of food-based biofuels that can count toward the target to only 5 per cent of transportation fuel. A final decision is yet be made on this proposal.

World industrial use of coarse grains is forecast to grow at a slower rate over the projection period compared with the recent past, driven by a slower rate of growth in US corn-based ethanol production.

Production of corn-derived ethanol drove the growth in US corn consumption from 2005–06 to 2011–12, largely as a result of biofuels policies. Over this time, corn used for ethanol production rose from around 54 million tonnes in 2006–07 to 127 million tonnes in 2011–12, around 40 per cent of US corn production. Over the projection period, corn-derived ethanol production in the United States is forecast to rise to around 136 million tonnes. Incremental rises in the Renewable Fuels Standard mandate early in the projection period are expected to support this growth.

Renewable Fuels Standard from 2008 to 2018

Source: United States Congressional Research Service

The maximum amount of ethanol derived from corn that can be counted toward the Renewable Fuels Standard will rise by 5 billion litres from 2013 to 57 billion litres in 2015 and remain at this level until the end of the current mandate in 2022. The remaining portion of the blending mandate rises from 10 billion litres in 2013 to 42 billion litres in 2018, which must be accounted for by ‘advanced biofuels’, such as sugarcane-based ethanol and biodiesel. A portion of the advanced quota is likely to be met with imported sugarcane ethanol from Brazil.

Consumption to grow in China

As a growing consumer of grains and oilseeds, China is forecast to play an increasingly important role in international gr