Australia hopes for ‘magnificent’ wheat crop in pandemic economy

Farmers Down Under are buying equipment in anticipation of a big harvest

Reuters – Just months after rains broke Australia’s crippling three-year drought, fields of grain have sprung to life, lifting forecasts for a bumper wheat harvest and reviving the beaten-up agricultural sector through roaring tractor sales and increased lending.

The mid-season crops in some of the country’s major eastern grain-growing areas are as lush as some industry veterans can remember, representing one of the few bright spots in the country’s pandemic-affected economy.

“I moved here 30 years ago, and I’ve never seen it this good. It is magnificent. It is wheat, barley, everywhere as far as your eye can see,” tractor dealer Roger Moylan said in late July, from Quirindi, a major grain-growing area in New South Wales (NSW) state.

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Moylan, from North West Farm Machinery, said sales of tractors and augers were booming.

“If auger sales are through the roof, that tells you one thing — there is going to be grain everywhere,” he said.

Australia was one of the top four global wheat exporters before the unrelenting drought started slashing production.

The country’s chief commodity forecaster recently lifted its wheat production forecasts for 2020-21 to 26.7 million tonnes, more than 75 per cent above the prior year’s level and the highest since Australia’s record 35.13 million tonnes in 2016-17.

Australia’s 10-year average is just over 24 million tonnes.

This year’s production could rise to as high as 30 million tonnes if export-focused Western Australia receives a good drenching in the next two months, said one Singapore-based trader at an international trading company that supplies Australian wheat to Asia.

Risks remain

Given most farmers won’t start harvesting until October at the earliest, there remains uncertainty over crop production, especially in Western Australia that does not currently have the high soil moisture levels of NSW.

Western Australia and NSW are the top two wheat-producing states in the country.

Lyndon Mickel, who has a 6,000-hectare farm near Esperance in Western Australia’s southern Wheat Belt, told Reuters that some recent rain had lifted spirits after a dry start to the season.

“We are sitting on a knife edge,” he said.

“If we can get some decent falls across the state in the next month we could come into a decent yield.”

Benchmark wheat prices earlier this year hit an 18-month high amid concerns about global supplies. While those fears have abated, prices continue to linger close to those highs.

Australian wheat exports this season are expected to nearly double from last year, the Australian Bureau of Agricultural and Resource Economics and Sciences said in June.

Yet souring diplomatic relations between Canberra and Beijing have also created a stumbling block for some grain farmers, after China effectively banned Australian barley imports in May via an 80.5 per cent tariff.

China accounts for more than one-fifth of agricultural exports from Australia, taking almost twice as much produce as the second-largest destination, Japan.

“Australia would probably need to diversify its trading partners especially to southeastern Asian economies, where population is growing rapidly,” Natixis economist Alicia Garcia-Harrero wrote in a note.

Small-town Australia

The long-awaited economic activity emerging in many small towns is a godsend for a rural sector still recovering from one of Australia’s worst-ever droughts that wilted crops and forced some communities to truck in drinking water in the country’s east.

Grant Cairns, head of agribusiness at Commonwealth Bank of Australia, told Reuters demand for equipment finance surged 27 per cent in June from a year ago while demand for land purchases were strong too.

“Our customers have sought to sow crops and replenish livestock that they’ve had to de-stock through the drought,” Cairns said.

NSW farmers have significantly expanded the size of their sown areas to push the country’s total winter crop acreage to above long-term averages, a government crop report said.

Tractor sales breached the 2,000 mark in the month of June, according to the Tractor and Machinery Association of Australia, the first time it has done so since 1981.

“It shows how resilient and how quickly farmers got back into the saddle and started buying equipment, said the association’s executive director, Gary Northover.

“Many dealers are even talking about increasing employment — there aren’t many industries doing that in a pandemic.”

Argentina is nearing an initial agreement with China that could pave the way for potential investments by the Asian giant in local pork production for export, Argentina’s undersecretary of trade and investment promotion told Reuters.

That could eventually lead to Chinese-backed hog farms in the South American nation more famed for its cattle-rearing grasslands, at a time when Beijing is looking to diversify pork supply after domestic farms were hit hard by African swine flu.

Pablo Sivori said a memorandum of understanding could be signed with China in the coming weeks. The country’s Foreign Minister Felipe Sola said earlier this month Chinese investment could help Argentina massively increase pork output.

“We have already agreed on the content of the memorandum,” Sivori said, adding that the Foreign Ministry had asked the Chinese government to sign the document virtually.

He added the planned MOU came after a process initiated by the private sector, and would involve frameworks for investment in Argentina, along with co-operation in areas of health, scientific and technological research related to the sector.

Argentina is already a major beef supplier to China, but a bit-part player in the global pork market. According to official data, in 2019 it produced 630,000 tons of pork, of which just 34,000 tons were exported.

However, the prospect of Chinese interest has sparked wild dreams of growth possibilities. Foreign Minister Sola said this month that Argentina could produce a lofty nine million tons of pork with Chinese backing, over 14 times current levels.

In March, Beijing urged China’s pork companies to invest in supply chains abroad to import due to the devastating effects of the African swine fever on Chinese herds.

China’s Agriculture and Commerce ministries did not respond to requests seeking comment.

Lisandro Culasso, head of the Argentine Association of Pig Producers (AAPP), said there was “Chinese interest” in the country, though any investments would depend on the signing of a memorandum between the two countries.

Experts on both sides, however, threw cold water on the idea Argentine pork production could scale up quickly.

Sivori said sanitary production measures established by local authorities would need to be followed, meaning the country could only gradually double production within around four years.

An executive with a Chinese firm that has invested in the animal farming sector overseas added that Argentina was a “quite risky” place to invest given local market volatility and the physical distance with China that would make shipping live pigs tricky.

“It is more feasible to ship frozen pork than live pigs for sure, but that also means you need to have a more extensive production chain there, and manage labour-intensive slaughterhouses in Argentina,” he said.

“Just the idea alone can drive you crazy.”

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