While acknowledging much of Australian agriculture has begun the year in the grip of severe drought, in its annual Australian Agriculture in Focus report, the world's leading food and agribusiness bank Rabobank says a return to just average seasonal conditions could see 2007 hold reasonable prospects for Australian agribusiness.

"Climatic conditions will remain the dominant concern over the coming year, however not everything is working against the sector," the report says. "The global and the local economy remain strong, providing solid support for demand growth, while agricultural commodity prices are also generally high."

As with 2006, when drought dominated the Australian agricultural scene, seasonal conditions will again be the most important determinant of prospects for the sector in 2007, the report says. Decent autumn rains will be crucial to many farmers.

Head of Food & Agribusiness Research for Rabobank Australia & New Zealand Bill Cordingley says for many sectors, it will be the March/April period that determines their production prospects in 2007.

"A decent autumn break, and typical rainfall patterns thereafter, would enable production levels in the cropping sector to recover quickly, with the potential to return to a normal harvest by the end of 2007," he says. "While recovery will be slower for the livestock sector, given the time lags inherent in rebuilding culled herds, improved pasture growth would also provide some immediate benefits to most.

"Once producers are able to finally emerge from the effects of drought, they should find a positive global market for agricultural products in 2007."

Australian Agriculture in Focus 2007 - Sector Summaries

Beef

Global demand for Australian beef is expected to remain strong this year, continuing the trend seen through 2006.

However, the sector has moved into 2007 significantly impacted by the effects of drought. Higher-than-usual slaughter rates, particularly of cows, in response to the dry conditions and resulting lack of pasture and cost of feed are expected to result in a fall in the herd in 2007. Beef production and exports are also expected to fall due to the reduced supply of animals for slaughter next year.

Despite strong global and local demand, the continued dry conditions also saw cattle prices finish 2006 down, with large numbers of animals turned off to market as producers struggled to provide feed and water for their stock.

Global export market conditions have, however, remained positive for the Australian industry. Demand from two of Australia's largest beef export markets, Japan and Korea, continued to be strong. Major competitor the United States failed to gain a foothold in these markets during the past year, despite the lifting of BSE-related bans on their product. Australian exports to Russia also increased significantly, while the US itself remains a large customer for our beef.

Dairy

Dairy market fundamentals are expected to remain positive at both global and local levels for at least the next 12 months. Frustratingly, however, the current drought has put industry profitability and growth on hold for the time being.

The prevailing combination of robust growth in global demand for dairy - led by Asia, the Middle East and Latin America - along with weak growth in the world's dairy export supplies is expected to underpin high export prices for the commodity in 2007. Dairy also continues to enjoy enviable consumption growth in the Australian market.

However, the majority of Australian dairy producers will face an extremely challenging finish to the 2006/07 season as irrigation water allocations are used up and feed remains scarce and expensive.

The prospects for the industry in the 2007/08 season will rely heavily on the arrival of a decent autumn break in dry conditions.

Grain & Oilseeds

Weather and politics provided an unfolding and, as yet, un-resolved grain-based drama during 2006.

The 2006 winter growing season was severely hampered by lack of rainfall. As a result, grain growers faced significant difficulties in sowing, establishing and growing crops. Recent forecasts from ABARE suggest Australia's total grain crop will decline, in volume terms, by more than 60 per cent in 2006/07. Wheat export volumes are forecast to decline by 75 per cent. In addition, low pasture availability has resulted in farmers increasing their use of grain to maintain livestock.

The industry also finished the year in a position of uncertainty in regards to the future of the wheat export single desk, with full resolution of wheat marketing issues likely to take some time. Following the final report from the long-running Cole Inquiry in November 2006, the Federal Government announced the Minister for Agriculture would take control of the 'right of veto' over export wheat, pending three months of consultation and review.

The combined impact of drought in Australia, poor weather in a number of other countries and the increasing use of grain and oilseeds for industrial purposes, including biofuels, has resulted in the prices of a number of grains reaching long-term highs.

The outlook for 2007 wheat prices is difficult to call. Global wheat consumption has outstripped production for several years and additional demand from biofuels is strong and growing. However, there are also moves underway to sizeably expand growing areas in 2007, providing a boost to global production capacity.

Further Information

To view the full report, click here

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