Australian and international farm policy news

Near-record wheat harvests for China and Pakistan

Forecasts by the FAO predict a 1.4% drop in worldwide wheat output for 2016. This is due to dry weather in the Russian Federation and Ukraine which has led to reduced winter plantings. China and Pakistan are set for near-record wheat harvests and India’s output is anticipated to recover.

FAO’s first production forecast for wheat in 2016 stands at 723 million tonnes, or 1.4% percent (10 million tonnes) below the record output achieved in 2015. Wheat utilisation is forecast to be rising to 724 million tonnes. This projected rise is due to increased food consumption and a resurgence of wheat usage in animal rations in the European Union (EU). Global world wheat trade in 2015/2016 for June/July is forecast at 151.1 million tonnes (down 2.5%). This reduction is driven by reduced import requirements from Morocco, Iran, Turkey and Uzbekistan.

The lessening demand for wheat and barley is compensated for by firmer demand for rice. The FAO now expects world trade in all cereals to decline by 2% in volume terms in 2015/16 from the previous season. The impact on Australian markets in China and India will be ongoing with both countries setting policies in place to secure domestic supply and food self-sufficiency.

Brazil raises record soy crop forecast to 101.2 million tonnes

The Brazilian 2015/2016 soybean crop is estimated at a record 101.18 tonnes. Growers planted nearly 4% more land to soybeans than last season and were obtaining firm yields when harvest began in March. Soybeans are closely tied to the meat market, as soybean meal is a main animal feed ingredient. With an anticipated growth in consumption rates for meat, soybeans maintain a promising outlook.

Brazil has surpassed the United States (US) as the highest producer of soybeans. Brazil’s share is at 44.2% while the US is at 36%. The current strong US dollar is constraining US exports, while Brazil’s Real is weaker. Brazil has made a strategic decision to export significant volumes of soybean to China. Whilst China has devoted its domestic crop production to corn to meet its growing domestic demand.

In Brazil the soybean industry is squeezed by high production costs and low world soybean prices, exacerbated by economic unrest. With industry formally requesting the Foreign Ministry to consider a WTO challenge of US farm supports, specifically US weather insurance and price guarantees.

The light shines on country of origin food labelling

Australian states and territories have signed off on the Federal Government’s plan for new country of original labels. The new labels clearly show the percentage of a product that is grown or manufactured in Australia. Compliance is set to start from 1 July 2016. Food manufacturers have an introductory period of two years to comply with the new requirements.

The new labelling may not deliver all the answers, as it does not specify where the imported food comes from and there is also an allowance for seasonal variation. This allows manufacturers to import ingredients when they are out of season in Australia and include an average on the label.

It is a win for the Australian consumer who can make an informed decision regarding the price they are willing pay depending on where that product is grown and manufactured. Whether Australian farmers can leverage the marketing potential of such labelling legislation is yet to be seen.

US farm incomes continue to slide downhill

The US Department of Agriculture (USDA) estimate net farm incomes to decline in 2016, a trend following 2014 and 2015 actual incomes. This is in contrast to the five-year period commencing in 2009 where the US farm sector’s income grew rapidly, peaking in 2013. Net cash farm income is expected to fall by 3% in 2016, after the steep descent of 38% in 2015.

This has been driven by a significant drop in crop revenue due to declining crop prices. Production has reached record or near record levels in both corn and soybean harvests over multiple years. Historically these commodities have represented more than 25% of the farm sector’s revenue. Animal and animal product revenues are expected to decline due to lower prices by almost $5 billion between 2013 and 2016.

Total sector expenses remain at historic highs, as they increased to almost 6% in 2014 with forecasts of falls of 3% in 2015 and 1% in 2016. While there is a drop in overall production expenses forecasted for 2016, notably of input purchases from feed and livestock. Fuel and oils are forecast to drop by 14.5%, while hired labour costs and interest are forecast to increase by 5% and 6.8%.

Other interesting highlights from the 2016 Farm Sector Income forecast are that direct government farm program payments are forecast to rise by 31.4% in 2016. While the new Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs, introduced in the 2014 Farm Bill, are expected to account for almost two-thirds of direct payments to farm operations.

Total farm sector equity is forecast to drop by 2.2% in 2016, as farm sector assets decline. The value of real estate is down 1.2% and the value of crops and animal/animal products and purchased inputs are down by 6.7% relative to 2015. These balance sheet changes result in a worsening of farm solvency measures (near historic lows) and liquidity positions on average have deteriorated.

The bigger picture is that the financial health of the US agricultural sector is strong even as the pattern of lower crop and livestock prices continues. The high net farm income levels from several years ago helped US producers strengthen their financial base, which is continuing with lower farm income forecasts and the tightening of farm budgets.

Image:  CSIRO