Rabobank, Media Release, 31 May 2022

Australia is laying the groundwork for a third consecutive bumper harvest, with this year’s total planted crop area forecast to reach a record 23.83 million hectares, Rabobank says in its just-released 2022/23 Winter Crop Outlook.

This would be nearly one per cent up on last year’s record planting and 11 per cent above the five-year average. It includes a 1.4 per cent lift in wheat and a record canola planting, up 20.9 per cent on last year, albeit at the expense of barley, oats and pulses.

The specialist agribusiness bank says – in a year of global shortages and high commodity prices – the forecast record planting comes as global markets look to Australia to deliver a “hat trick of great grain and oilseed production” at a time when poor production and export constraints in a number of countries are prompting the United Nations to warn that the world is on the brink of a food crisis.

Locally, the bank says, “hopes are on” another large winter crop to allow Australian farmers to secure good margins in the face of high costs for inputs including fertiliser, fuel, freight and agrochemicals.

Across the states, the report says, winter plantings are forecast to be up on last year by 10 per cent in Victoria and eight per cent in Queensland.

While New South Wales, South Australia and Western Australia are expected to see small contractions in planted area – of two per cent, one per cent and one per cent respectively.

Production

Combined with the favourable seasonal outlook for the year ahead, Rabobank says, the forecast record national winter crop planting – currently underway across the country – should see Australia on track to deliver another above-average grain harvest for this season.

Report co-author, RaboResearch agricultural analyst Dennis Voznesenski said while the outlook is for another bumper harvest, it was too early in the season to tell if the record planting would deliver another record in production this year.

“At this point in time, until the crop is more progressed and we can see if there are any surprises in store, we have been conservative in our production volume estimates. In particular we’re mindful of the slow planting progress in NSW and the corresponding decline in yield potential with late planting, as well as overly-wet growing conditions,” he said.

Based on current plantings and slightly above-average yield expectations, the bank estimates Australia will be on track to deliver total wheat production of 32.5 million tonnes (down 10 per cent on last year), barley of 11 million tonnes (down 18 per cent) and canola of 5.8 million tonnes (down nine per cent).

Export program outlook

This would see Australia with “well above-average export potential again in 2022/23”, the outlook says.

Report co-author, RaboResearch senior commodities analyst Cheryl Kalisch Gordon said a prospective third consecutive bumper harvest would mean Australia would be “well placed to help support global wheat needs in 2022/23”.

“Excess carryover from 2021/22, together with another above-average harvest and strong global demand, means we expect Australia could export around 26 million tonnes of wheat again in 2022/23, almost 50 per cent above the 10-year average and more than 50 per cent above the five-year average,” she said.

Australia is again expected to be able to deliver a “strong export performance into South-East Asia”, she said, with “Australian wheat continuing to be the price-setter across the region on a landed-cost basis, due to both a more favourable freight charge than other origins further afield and a lower origination cost due to abundant local supplies.”

Rabobank says Australia is also forecast to deliver an impressive barley and canola export program in 2022/23, albeit down on last year. The bank currently sees barley exports of 7.5 million tonnes (down 16 per cent on the previous year) and canola exports at 4.5 million tonnes (down six per cent).

Dr Kalisch Gordon said increased canola planting in Australia this season was at the expense of barley and pulses, with Chinese anti-dumping tariffs that were still in place on Australian barley and lower prices earlier in the year the primary reasons for less barley hectares being planted. For pulses, lacklustre pricing and high stocks still on farm are driving lower chickpea plantings this year.

For chickpeas and niche grain and pulses, the report says, ongoing issues with the availability, reliability and cost of container freight – which have been further adversely impacted by China’s ongoing Covid lockdowns – are expected to continue to challenge boxed freight and constrain exports.

Global markets

Global stocks of grains and oilseeds are set to remain low and move lower in the coming year, Rabobank says, supporting elevated global prices through 2022/23.

“2022/23 may be the first season in nine years in which global consumption of grain declines on the previous year – due to the high prices and limited supply,” Mr Voznesenski said.

“But even a decline in consumption won’t stop global stocks of wheat and most coarse grains from falling to their lowest levels since 2015/16.”

Even without the pressure being put on grain markets by the Russia/Ukraine war, which is impacting production and exports out of the Black Sea region, markets would be tight, he said.

“Global stocks remain significantly below average outside of the Black Sea, meaning prices will remain above average even if there is a ceasefire,” Mr Voznesenski said.

Price outlook

The bank expects global wheat prices to continue trading near current levels with Chicago Board of Trade (CBOT) wheat to trade around USc 1100 per bushel out to the first half of 2023. But it expects prices to be extremely volatile in this higher range, as markets react to news of changes in crop prospects and what can ultimately be exported from Ukraine, Russia and India.

Strong demand for feed barley as a substitute for high-priced wheat and corn feed should keep global barley consumption near or above last year’s levels and be supportive of global prices, Rabobank says.

For canola – which sits in the broader edible oil market – prices are also expected to remain strong. This is given the tight global supply of edible oils, elevated fuel prices and good crush margins. Some softening of canola prices, although not substantial, is likely to occur when the northern hemisphere new crop comes on board in Q3 2022, according to the report.

Local prices for wheat, barley and canola are expected to remain historically strong, Rabobank says, albeit continuing to trade at a discount to global levels.

This is due to a number of factors, Dr Kalisch Gordon said, but primarily because of the large amount of local supply following two consecutive years of record or near-record production, with a third one “on the cards”.

“Australia has a very large exportable surplus with, in particular, a large volume of unsold wheat, especially on the east coast. And this will continue to weigh on local prices unless currently favourable seasonal conditions ‘turn south’,” she said.

For wheat, Dr Kalisch Gordon said, the bank expects basis (the difference between local and global prices) to remain negative over the balance of 2022 and into 2023 – driven by the substantial carryover from last year along with the expected large 2022/23 Australian crop, high freight costs and a discount as a result of a high-risk environment to hold grain for bulk handlers.

Domestically, the bank expects Australian premium white (APW) wheat track prices to trade at an average above AUD400 a tonne over the balance of the year.

Local feed barley prices are forecast to trade between AUD 415 and AUD 354 a tonne over the next 12 months, while local canola prices are forecast to range from AUD 938 to AUD 805 a tonne over the course of 2022/23.

Dr Kalisch Gordon said if Australia has another record harvest, “we could see a situation of full bulk handler sites, full on-farm storage and large volumes of grain in silo bags on farm awaiting shipping slots. This could significantly weigh on prices, especially if conditions are very wet and farmers need to move grain off farm”.

An on-the-ground survey by the bank showed that nationally, farmers have increased permanent on-farm storage by more than 23 per cent since 2020 and are expected to expand this by another 15 to 20 per cent over the next 12 months, which could help alleviate some of the pressure on prices at harvest from a predicted third consecutive large crop.

Crop inputs

When it comes to farm inputs, prices for most are believed to have peaked, but are expected to remain elevated due to the high cost of production and freight, as well as the sanctions on Russia and Belarus, according to the Rabobank outlook.

Mr Voznesenski said after peaking in mid-March, a decline seen in global urea prices was expected to flow into local Australian markets in late July/early August, though prices would remain volatile.

“Prices for potash are believed to have peaked and local potash prices should be helped by an expected rise in the Australian dollar by the end of the year, though marginally,” he said.

“Phosphate prices may also have peaked, though will remain above average in 2022, depending on China’s return to the export market.”

Mr Voznesenski said the bank’s survey had indicated many farmers were already well prepared when it comes to farm inputs, with a large amount of their needs already on farm. This was shown to be particularly the case in Western Australia, where farmers reported they had almost 80 per cent of their fertiliser and ag chemical requirements already on farm and in South Australia, where farmers already had close to 80 per cent of their fertiliser needs and 70 per cent of ag chemicals.