Positive outlook for agriculture in 2021 thanks to weather, output

farming, farm, agtech

Despite the ongoing COVID-19 pandemic and rising diplomatic tensions with China, Australia’s agricultural industry is feeling optimistic for 2021 on the back of improvements in weather and crop output.

According to the Australian Bureau of Agricultural and Resource Economics and Sciences, wheat production is expected to reach 31.2 million tonnes in 2020-21, an increase of 106 per cent in the previous year. The barley crop is also anticipated to expand by 33 per cent, to reach 12 million tonnes.

“Improved weather conditions after a prolonged period of drought are expected to boost production and offset lower prices, supporting the Agribusiness industry,” IBISWorld Senior Industry Analyst, Matthew Reeves, said.

“Grains and fertiliser producers are expected to post a strong performance in 2021, while wool producers will struggle,” Reeves added. “Following severe drought conditions over much of the prior three-year period, greater rainfall levels in key growing areas have improved crop yields. The expected level of output in 2020-21 is a near-record, second only to the highs achieved in 2016-17.”

Favourable climate conditions and higher export prices are expected to contribute to a 44.4 per cent rise in revenue in the grain-growing industry in 2020-21, though domestic grain prices are expected to fall substantially.

“The domestic price of wheat is forecast to fall to $266.54 a tonne in 2020-21, a decline of 19.7 per cent,” Reeves said. “Similarly, the domestic price of coarse grains, which includes barley, sorghum, maize, oats and triticale, is expected to fall by 17.4 per cent in 2020-21, to $234.90 per tonne,” explained Reeves.

Global demand for grains is expected to rise during the year, supporting higher world prices. On the other hand, the economic impact of the COVID-19 pandemic has created demand deficiencies for premium wheat products and downstream dairy foods. Additionally, high rainfall has limited demand for grain feed from Australian livestock farmers, placing downward pressure on domestic prices.

And, while barley production has surged, China imposed an 80.5 per cent tariff on Australian barley, which cut off local farmers from its largest market as China accounted for 30.3 per cent of Australian barley exports in 2019-20. This has forced barley growers to find new export markets, such as beer manufacturers in Mexico and India.

Improvements in rainfall and the associated increase in the total crop area planted also means an increased demand for fertiliser. Revenue in the fertiliser manufacturing industry is expected to rise by 11.6 per cent in 2020-21, to $4.2 billion.

“Higher fertiliser prices, improved seasonal conditions and a significant increase in cropping area relative to the historical lows recorded in 2019-20 are likely to bring industry revenue back in line with historical averages,” Reeves said.

The prices of key inputs into fertiliser, such as natural gas and ammonia, are expected to increase from the lows caused by supply-demand disparities due to the COVID-19 pandemic. As a result, the domestic price of fertiliser is expected to rise by 7.2 per cent in 2020-21.