PRLog (Press Release) - Apr. 17, 2012 - Every March, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) run their annual outlook conference. As part of their preparation for the conference, members of the Bureau collectively review their five year projections for key agricultural commodities.This month’s Agrinews details the latest ABARES forecasts and assess their implications for the industry. Global economic growth was 3.8% in 2011 but is projected to fall slightly, to 3.5%, in 2012 before trending to around 4% over the next five years.Concerns over government debt refinancing mean that economic growth in the OECD (developed countries) is expected to be constrained at around 2% over the next five years. By contrast, developing countries are forecast to average over 6% growth per year in the same period.Growth in developing countries is more important than growth in the OECD. In the OECD there is more than enough food to eat, so increases in income aren’t spent on food (although you might buy a nicer wine). But in the developing world we know that increases in income have a direct impact on demand for food.Because populations are increasing in the developing world at the same time as the economy grows, demand for food is projected to rise. This will favour protein products (meat, milk and eggs) over carbohydrates (grains), with the latter only increasing in line with population growth.ABARES forecast that the Australian dollar will stay at US$ 104c through 2012. But slowing demand for hard commodities and a gradual narrowing of interest rate differentials to global economies is expected to result in a slight falling off to US$ 95c by 2017.
La Nina losing its grip
The 2011/12 La Nina event appears to be nearing its end with neutral ENSO conditions beginning to prevail; the majority of forecast models are now predicting neutral conditions through to at least the end of autumn.As a result of the La Nina event water temperatures are above average around Australia. This, in turn, has prompted forecasts of above average rainfall, supported by tropical cyclone activity, on the east coast over the next three months.The Indian Ocean dipole is currently neutral and is expected to have little impact during autumn. Rainfall models indicate slightly below average falls through WA over the next three months, although it should be noted that rainfall is typically low during these periods anyway.Confidence in the model is reasonable in WA but lower on the east coast. With warm sea temperatures around the continent, minimum temperatures are expected to be well above average throughout Australia over the next three months.Forecasts for maximum temperatures are more geographically divided: above average in WA, below average in northern NSW and average through the east coast.Developing Countries are forecast to grow at over 6& per year over the next five years
Coarse grains, wheat & oilseeds
Corn is again set to drive world coarse grain to record production levels (almost 1.2 billion tonnes).A 6% increase in barley production is also projected – to 147mt. With 490mt of coarse grains now used for industrial purposes (largely to make ethanol in the US) demand has changed dramatically in recent years.The diversion of corn to ethanol has created greater competition for acres leading to higher prices globally. But with the US renewable fuel mandate now met, industrial demand for ethanol looks set to taper over the next few years.World closing stocks of coarse grains will rise to 168mt in 2012/13, an increase of 10% on 2011/12 levels. This is likely to result in a softening of prices during the year. While corn prices are set to fall, the wheat differential is expected to return closer to the long term average, keeping price falls relatively minor.World barley stocks are forecast to increase by 15% to 26mt, just below the long term average of 27mt.
On the back of record global opening stocks and a slight increase in planted area, ABARES expect the world wheat indicator price (US HRW fob gulf) to decline to an average of around US $275/t in 2012/13.Production and consumption will be around 680mt so, barring any major weather issues, the global balance sheet appears poised to remain loose for another year with poor prices expected to continue into 2013/14.
Encouraged by improved seasonal conditions in the EU, ABARES forecast world oilseed production to increase to a record 467mt in 2012/13. Consumption is also expected to rise – to 469mt.Oilseed demand is growing due to its popularity both as a high protein animal feed and as a feedstock for biodiesel in the EU (where canola is the feedstock of choice). Industrial use of oilseeds is not as important as it is for coarse grains.Closing stocks are forecast to increase 4% in 2012/13 to 79MT. Thanks to improved seasonal in conditions in the EU, world oilseed production is forecast to increase to a record 467MT in 2012/13.
Sugar & Cotton
Record prices paid for SUGAR in 2010/11 have prompted a substantial rise in production, with global levels projected to increase 9.8mt to a record 176mt in 2011/12.As a result of increased production, stock-to-use levels are also tipped to rise; ABARES forecasts levels to recover close to 40% over the next two years.With concerns over supply diminishing, prices have come off in 2011/12 (down to US$ 21.5c/lb) and supply increases next year will be muted. Over the longer term, however, the rising global population supports a positive outlook for sugar.Demand is projected to increase by 2.4% next year, reflecting the growing affluence of populations in the world’s developing nations.In 2010/11 global COTTON supplies fell to levels that caused anxiety among consuming businesses concerned about their capacity to keep up with demand.This anxiety was reflected in the markets – a spectacular price run saw cotton fetch $1000/bale. Production has recovered strongly in 2011/12, increasing globally by 7% to a record 26.9mt.Improved supply, combined with the economic shock of GFC2, has seen demand fall to 24mt. Stock levels are now comfortable again and ABARES predict prices will fall to US$ 103c/lb in 2011/12 and 95c/lb in 2012/13...then make a gradual recovery as the global economy improves.
Cattle, Sheep, Pig & Poultry
Rising incomes in the developing world are expected to drive economic growth over the medium term. As global affluence increases so does demand for food, especially protein – good news for our livestock industries.
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About Peter Rowe
Peter Rowe writes for Bankwest and provides valuable agricultural finance news and updates covering the latest on rural loans and all other Agri Finance products provided by Bankwest.