Jun 22 2018
Following a record-breaking season in 2016-17 in terms of grain output, Australia’s production output from key grain crops is expected to fall sharply in 2017-18. This reflects the highly volatile and weather-dependent nature of many of Australia’s agricultural industries. The 2016-17 season saw the strong performance of operators along the grain supply chain, with both grain growers and wholesalers, such as GrainCorp and Glencore, experiencing strong revenue growth. While the 2016-17 season saw record crops for wheat and barley, significant declines in output are expected to drive down revenue along the supply chain in 2017-18.
Wheat production, which represents over half of Australia’s grain crop, is expected to fall to a 10-year low. According to the Australian Bureau of Agricultural and Resource Economics, wheat output is anticipated to fall 38.2% in 2017-18, while barley output is expected to fall by 33.4%. Many other grain crops are set to fall closer into line with long-term averages in 2017-18 after strong output the previous year. The impact on the Grain Growing industry’s revenue is expected to be severe, with the industry anticipated to experience a revenue decline of 22.7% in 2017-18, falling to $11.1 billion. Furthermore, revenue in the Cereal Grain Wholesaling industry is expected to fall by 14.2% in 2017-18.
The industry’s performance is heavily reliant on weather conditions throughout the growing season, and crop performance can vary significantly from region to region. In 2017-18, adverse weather conditions, including frosts in Victoria and southern New South Wales, and low rainfall in Queensland and northern New South Wales, have contributed to significant output declines across the Grain Growing industry. However, some grain growers in the Western Australian wheat belt benefited from late-season rainfall, helping support output levels.
Both the Grain Growing industry and Cereal Grain Wholesaling industry exhibit high revenue volatility. While this volatility is primarily weather-driven, grain price fluctuations also heavily influence industry revenue. While domestic grain prices are influenced by global prices, falling domestic output typically drives local grain prices higher due to restricted supply. As a result, in response to falling output in the current year, the domestic prices of wheat and coarse grains are expected to rise strongly. These price rises are anticipated to partially offset the impact of declining output on industry revenue.
The Grain Growing industry, like many other industries across the agribusiness sector, has been consolidating over the past five years. The number of industry enterprises has declined over the period, but farm sizes have been getting larger, as grain growers have sought to increase economies of scale. The agribusiness sector has also become increasingly globalised, and has experienced rising foreign investment over the past five years as foreign entities, such as sovereign wealth funds and endowments, have sought to gain a foothold in a country renowned for its agricultural produce.
The Grain Growing industry is also highly exposed to international trade. Export revenue is expected to fall by 23.3% in 2017-18 in line with falling output, although export markets are still anticipated to account for almost 75% of industry revenue. As a result, world grain price fluctuations and changes in the value of the Australian dollar can influence the industry’s performance. Uncertainty in global markets, particularly in light of the ongoing trade dispute between the United States and China, will likely also impact the industry in the short term, and may provide an opportunity for Australian grain growers to expand their presence in global markets.