Agricultural commodities: March quarter 2017

Overview
The March edition of Agricultural commodities contains ABARES' latest outlook for Australia's key agricultural commodities to 2021-22. The outlook will be an important focal point at the conference and underpin many presentations delivered by ABARES speakers at the conference. The report provides updated commodity forecasts, as well as articles on the EU sheep meat industry; farm performance of broadacre and dairy farms; productivity in Australia's broadacre and dairy industries; and disaggregating farm performance by size.

Key Issues Commodity forecasts
• The gross value of farm production is forecast to increase by 8.3 per cent to a record $63.8 billion in 2016-17 before easing by 3.9 per cent to a forecast $61.3 billion in 2017-18. Despite the forecast decline, the gross value of farm production in 2017-18 would be 17.3 per cent higher than the average of $52.3 billion over the five years to 2015-16 in nominal terms. • The gross value of livestock production is forecast to increase by around 4.4 per cent to $31.2 billion in 2017-18, following a forecast decrease of 2.6 per cent in 2016-17. If this forecast is realised, the gross value of livestock production in 2017-18 would be around 28 per cent higher than the average of $24.4 billion over the five years to 2015-16 in nominal terms. • The gross value of crop production is forecast to decrease by 11.3 per cent to $30 billion in 2017-18, after a forecast increase of 20.2 per cent in 2016-17. The decrease follows record production of wheat and barley in 2016-17, which resulted from favourable seasonal conditions during winter and spring. If this forecast is realised, the gross value of crop production in 2017-18 would be around 8 per cent higher than the average of $27.9 billion over the five years to 2015-16 in nominal terms. • In 2021-22 the gross value of farm production is projected to be around $59.6 billion (in 2016-17 dollars), 8.6 per cent higher than the average of $54.9 billion over the five years to 2015-16 (also in 2016-17 dollars). In 2021-22 the gross value of crop production is projected to be around $29.0 billion and the gross value of livestock production is projected to be around $30.6 billion (in 2016-17 dollars). • Export earnings from farm commodities are forecast to be around $48.7 billion in 2017-18, higher than the forecast $47.7 billion in 2016-17. • The agricultural commodities for which export earnings are forecast to rise in 2017-18 are beef and veal (up 1 per cent), wool (10 per cent), dairy products (11 per cent), sugar (10 per cent), cotton (35 per cent), wine (5 per cent), lamb (3 per cent), live feeder/slaughter cattle (4 per cent), rock lobster (6 per cent) and mutton (1 per cent). • Forecast increases in 2017-18 are expected to be partly offset by expected declines in export earnings for wheat (down 9 per cent), coarse grains (11 per cent), canola (6 per cent) and chickpeas (42 per cent). • In Australian dollar terms, export prices of wool, dairy products, sugar, wine, lamb, barley, canola, rock lobster and mutton are forecast to increase in 2017-18. Export prices for cotton and chickpeas are forecast to fall. Prices for beef and veal, wheat and live feeder/slaughter cattle are forecast to remain around the same as in 2016-17. • In 2021-22 the value of farm exports is projected to be around $46.6 billion (in 2016-17 dollars), 8 per cent higher than the average of $43.1 billion over the five years to 2015-16 in real terms. • The value of crop exports is projected to be $24.9 billion (in 2016-17 dollars) in 2021-22, 7 per cent higher than the average of $23.2 billion over the five years to 2015-16 in real terms. The value of livestock exports is projected to be $21.8 billion (in 2016-17 dollars) in 2021-22, 10 per cent higher than the average of $19.8 billion over the five years to 2015-16 in real terms. • Export earnings for fisheries products are forecast to increase by 2.3 per cent in 2017-18 to $1.5 billion, after decreasing by a forecast 3.4 per cent in 2016-17.

Economic assumptions underlying this set of commodity forecasts

In preparing this set of agricultural commodity forecasts: • World economic growth is assumed to be 3.3 per cent in 2017 and 3.4 per cent in 2018. Growth is expected to rise further to around 3.5 per cent in 2019 before declining to 3.4 per cent in 2021 and 3.3 per cent in 2022. • Economic growth in Australia is assumed to average 2.8 per cent in 2017-18. Over the medium term to 2021-22, economic growth is assumed to average around 3 per cent. • The Australian dollar is assumed to average US73 cents in 2017-18, slightly lower than the forecast average of US75 cents in 2016-17. It is assumed to appreciate slightly over the medium term, reaching US74 cents towards 2021-22.

Articles on agricultural issues
The EU sheep meat industry
• The European Union is one of the world's largest consumers of sheep meat. Imports are controlled by import quotas and prohibitive out-of-quota tariffs. • Australia is the second largest exporter to the European Union, behind New Zealand, although its allocated quota is just 8 per cent that of New Zealand's. • As a high value market for sheep meat, expanding sheep meat exports to the European Union would benefit the Australian industry. However, until the trade outcomes of Brexit are known, opportunities for Australian sheep meat exporters are uncertain.

Farm performance: broadacre and dairy farms, 2014-15 to 2016-17
• In 2016-17 farm cash income for Australian broadacre farms is projected to average $216,000 a farm, the highest recorded in the past 20 years. • Record broadacre farm cash incomes this year are the result of near record winter grain production in most regions and good prices for beef cattle, sheep, lamb and wool. • Average farm cash income is projected to increase for broadacre farms in all states except Tasmania in 2016-17. • Farm cash income for dairy farms is projected to decline by 17 per cent nationally to an average of $105,000 a farm in 2016-17, reflecting lower average farmgate milk prices and reduced milk production.

Productivity in Australia's broadacre and dairy industries
• From 1977-78 to 2014-15, productivity in the broadacre industries averaged 1.1 per cent a year as a result of declining input use (down 1 per cent a year) and modest output growth (up 0.1 per cent a year). • In the dairy industry, productivity growth averaged 1.5 per cent a year between 1978-79 and 2014-15. This reflected average annual growth of 1.3 per cent in output and an average annual decline of 0.2 per cent in input use.

Disaggregating farm performance by size
• The largest 10 per cent of broadacre farms produced 46 per cent of total output, while the smallest 50 per cent of farms produced 12 per cent of total output. • The average rate of return, including capital appreciation, generated by the largest 10 per cent of broadacre farms was 8.2 per cent, while the smallest 10 per cent generated average returns of -2.8 per cent. • The largest 10 per cent of broadacre farms had the lowest average equity ratio of all farms (79 per cent), while the smallest 10 per cent of farms had the highest average equity ratio (97 per cent).