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Cautious optimism for Australian grains but coronavirus disruption risk remains

Favorable climatic conditions have set up a bumper grains crop in Australia. But ANZ warns the sector should prepare for ‘the confluence of major global factors’, including covid-19.

The Australian cropping sector was beset by negative stories about drought for most of 2018 and 2019 (on the east coast anyway – Western Australia was doing very well during that period).

But now the wind, and the rest of the weather, has changed and the country is set for a bumper crop this year, with ANZ forecasting a harvest of 26 million tonnes in 2020-21, which would represent a 71 percent increase on the previous year.

Exports alone could reach 17.5 million tonnes, according to some estimates, an increase of 90 percent on the year before and higher than that year’s total crop of 15.2 million tonnes.

Such a jump would be one of the largest year-on-year increases in more than 70 years, the bank said.

This is obviously very welcome news. Macquarie Infrastructure and Real Assets’ head of ag, Liz O’Leary, told us in June MIRA’s grains farmers had a “little spring in their step” after a wet start to the season.

“Seeding was just a joy to observe after some really tough years of sowing dry, so planting with a solid moisture profile and strong seasonal conditions on the horizon was a real positive,” she said.

Some farms begin harvesting in October while others will wait until as late as January, so crops will still need more moisture to reach their full potential. But growers that Agri Investor has spoken to in recent weeks have expressed cautious optimism about the outlook for the season ahead.

Despite ag’s relatively strong performance during the pandemic to date, there is a chance that issues around logistics and supply chains could pose problems as the volume of grain that needs to be moved increases dramatically.

“Growers, contractors and traders will also be looking to ensure adequate availability of harvesting and transport machinery, including headers, trucks and train capacity,” ANZ agri research director Michael Whitehead said.

“While the covid-19 situation in Australia later this year is difficult to predict, it would be wise to factor in any implications from possible continuing restrictions on cross-border movements between states.”

In its forecast report, ANZ said: “It will be important for the industry to ensure that any potential issues such as port access and capacity, or possible covid-19-related bureaucratic issues at the receiver end, are planned for in advance. In addition, for companies utilizing containerized grain, any issues arising out of the reduced availability of containers due to covid-19-related shipping interruptions will also need to be factored into planning.”

Make no mistake, in the grand scheme of things during the current environment, this should fall under the category of a relatively good problem to have.

However, as ANZ pointed out: “The [grains] industry needs to prepare and strategize for the confluence of major global factors set to continue impacting the sector.”

All the major grain-producing countries have seen relatively good growing seasons this year, with some like Australia forecasting potentially record crops.

While this is clearly preferable to drought, it seems unlikely there will be any strong price rises in the months to come.

The Australian grains sector is a resilient one, though, and is less reliant on a narrow set of export markets than some other sectors – notwithstanding the hit that barley growers will have taken from China’s decision to impose tariffs earlier this year.

Planning and preparation, as ever, will be vital to ensuring this positive outlook is capitalized upon.

Write to the author at daniel.k@peimedia.com