AGRI- SECTOR REVIEW 1

Transcription

1 1 AGRI- SECTOR REVIEW

2 FOREWORD It is my great pleasure to introduce the first edition of Rural Banks Agri-Sector Review as part of an ongoing series of information articles to our customers. The publication heralds from Rural Banks operating model, commitment to the agribusiness community and deep understanding of the challenges and opportunities facing farmers. Importantly we recognise the role that knowledge, technology and continuous improvement play in the evolvement and prosperity of farmers and this document strives to present information that assists this aim. Progressively we will be seeking feedback from our customers to ensure this document meets their continually changing needs as we acknowledge requirements differ greatly between sectors, industry and location. I trust you will find this document a useful addition to assist you with your farming requirements and operations. Please do not hesitate to contact your local Rural Bank manager or representative for further information on how Rural Bank can assist you. Yours Sincerely Paul Hutchinson CEO Rural Bank Limited

3 CONTENTS EXECUTIVE SUMMARY 5 ECONOMIC CONDITIONS 8 AUSTRALIAN AGRICULTURE 11 COMMODITIES OUTLOOK 17 GLOBAL AGRI OUTLOOK 23 REFERENCE LIST 25

4 EXECUTIVE SUMMARY The outlook for Australian agriculture is positive. Whilst conditions in some sectors and geographies are challenging, overall agricultural production and returns are expected to be sound and increase over the longer term. The key drivers within the sector include continued technological advancement in production, strong demand for commodities, population growth, increased consumption per capita and the contraction in global supply. Global supply of some agricultural commodities for food has been adversely impacted by a reduction in stocks due to poor seasons, alternative use of commodities and diminishing availability of productive land mass. In addition, food security concerns are increasing prompting some countries to place restrictions on exports. To some extent, the full impact on demand and prices has been moderated by the impact of global economic conditions on more price elastic commodities. Domestically, seasonal conditions in the eastern and southern states remain favourable, commodity prices remain sound and, Western Australia is on track to return a record grain harvest following the extreme drought of Rural Bank s forecast for agriculture is summarised in the table below. The key medium term challenges for Australian agriculture are interest rates and the exchange rate. The key medium term challenges for global agriculture are on the demand side heavily influenced by the speed of any economic recovery in the US and Europe and predicated on continuing strong economic conditions in Asia, principally China and India. SHORT TERM MEDIUM TERM LONG TERM Australian Agriculture Positive Neutral Positive Global Agriculture Positive Neutral Positive Commodities Neutral Positive Positive Rural Property Soft Neutral Positive 5

5 THE POSITIVES The Australian Economy The Australian economy remains sound and is outperforming relative to many other economies across the developed world; Australia s unemployment rate is low, currently standing at 5.2% compared with 8.5% in the United States; Economic growth is forecast to be 3.25% in 2011/12 with a budget surplus estimated in 2012/13; There is strong demand for Australian natural resources, in particular for iron ore and coal, and export demand from Asia remains resilient and strong; Mining infrastructure projects continue in Queensland, South Australia and Western Australia; Australia continues to attract foreign investment particularly in the resource sector. Agricultural Commodities Livestock prices over the past 12 months for beef and meat sheep have traded at record levels and remain strong. Prices have been influenced by: Contraction in national breeder numbers across a number of key cattle producing nations (eg US herd is at 1958 levels); Strong restocker demand for young cattle in south east Australia on the back of improved seasonal conditions. This is expected to continue; Greater numbers of female cattle being retained to rebuild herd sizes and/or take advantage of the seasonal conditions across eastern and southern Australia; Increased demand for meat sheep from restockers, processors and exporters; Whilst the Australian dollar has traded at or above parity with the US dollar for much of 2011, the New Zealand dollar has also continued to trade strongly against the US dollar over the same period. Given Australia competes with New Zealand for sheep exports to our two largest destinations for lamb, the United States and China, our relative competitiveness has not been materially eroded. 6 Wheat production in 2011/12 will be a new record, with Western Australian grain growers returning to average yields or better but reduced prices weakened the result for growers. In the eastern and southern states, yields were down on the 2010/11 record yields and strong prices. The 2011/12 year produced a record wheat harvest of 28.3 million tonnes. The wheat sector outlook remains positive due to: Improved wheat production forecast in WA of circa 10 million tonnes. Increases in wheat exports by 13.3% in 2011/12 to 20.9 million tonnes. Whilst prices have eased they remain sound and at levels sufficient to generate economic returns (the world wheat indicator price is forecast to average US$295/tonne in 2011/12); Recovery for global wheat producers. In 2011 China, Ukraine and Russia all recorded improved wheat production numbers, after a poor season in The high Australian dollar is impacting wheat producers returns however. Fibres have rallied strongly with wool prices remaining firm amid supply constraints. Cotton production has increased following drought breaking rains in New South Wales and Queensland. The following is of particular note: The supply of wool sheep has been under pressure due to strong prices particularly for store lambs. Prices have eased from 2010/11 levels as more wool makes it to market, prices are expected to remain firm overall; Global supply of cotton has recovered from the previous shortage of The indicator price is forecast to average 103 /lb in 2011/12, well down on the unsustainable peak of US247 /lb in March Australian cotton production in 2010/2011 was higher than it has been for a number of years and is forecast to be at record levels (1.1 million tonnes) in 2011/12, the firm conditions following heavy rainfalls across NSW and southern Queensland. Seasonal Conditions have returned to historical averages with Western Australia receiving drought-breaking rains across much of the state and the eastern states enjoying a reprieve from the extreme weather events of summer Generally we note: A record grain harvest of 43.4 million tonnes is forecast. Western Australia is forecasting a wheat harvest of circa 10 million tonnes, near double the severely drought effected 2010/11 result. Cropping districts in eastern and southern states received welcome rainfall in the crucial September growing period. Yields are forecast to be down on last years excellent results, but in line with historical averages and more evenly distributed nationally. On farm water storage is strong in most parts of Australia, supporting increased livestock production. Irrigators have access to full or increased water entitlements due to the excellent flows through the Murray-Darling Basin. THE CHALLENGES The Economy Global economic conditions remain volatile: The Eurozone debt crisis continues to impact financial markets, with future movements in Australian markets largely dependent on the European Union s (EU) response to possible defaults by Greece and Italy. The risk of contagion from the United States and Europe persists and global confidence remains low; Unrest in the Middle East/North Africa is also affecting confidence and placing inflationary pressure in some markets (e.g. oil); Investment capital is limited and the flight to quality is still evident. Domestically we see challenges or downside risk resulting from: The large reliance on the natural resources (mining) sector (two speed economy); Softening in retail and housing; Business confidence and investment in non-mining industries remains low; Any further appreciation of the Australian dollar is likely to impact demand and prices across a number of soft commodities and increases the agricultural sector s exposure to global supply.

6 Labour markets remain tight, particularly in some regional areas noting: The mining boom has seen the wages available in mining projects far exceed those available in agriculture; Availability of labour is likely to be further strained given a number of larger Government infrastructure projects in regional areas. Government Policy Key policies impacting or having potential to impact agriculture include: Live export ban The ban on live export cattle to Indonesia in June 2011 had an adverse impact on a number of larger northern cattle producers. These impacts have been widespread, affecting associated industries and confidence in the cattle sector in northern Australia regardless of export dependency. The Indonesian market accounted for 58.6% of live exports in 2011, down from 59% in 2010 and 81% in The reduction of the Indonesian Live Export quota has further dampened confidence and will require the development of alternative markets for live export orientated producers. The Indonesian government has announced a goal to achieve self-sufficiency of beef, with discussion taking place on Australian investment into the Indonesian breeding stock and beef processing industry. Carbon tax The impact on primary production is yet to be fully analysed however at this stage the expected demand for forestry assets has not materialised. Rural property markets The rural property market remains relatively flat and supply is exceeding demand for cattle properties in Queensland. Auction clearance rates in Queensland remain low and the live export ban has weakened confidence further. It remains too early to quantify the price correction for larger cattle prices in Queensland and additional stock continues to be presented to the market. Some sales of smaller-scale properties are being achieved but market confidence continues to limit interest in larger scale properties. Seasonal Extreme climatic events The extraordinary summer weather events in Queensland, New South Wales and Victoria early in 2011 resulted in livestock and crop losses and highlighted the susceptibility of agriculture to infrastructure damage. For prolonged periods, access to roads impeded the markets, particularly for livestock; Extreme droughts, late rains etc have a material impact on production and are difficult to forecast. La Niña conditions have strengthened across the tropical Pacific. The majority of leading climate models predict the La Niña is likely to peak during the next month and last at least until the end of summer THE OPPORTUNITIES The outlook for Australian agriculture is closely correlated to economic conditions in the developed and developing economies. Any accelerated recovery in Europe and/or the United States is expected to result in above average returns and demand for agricultural assets and commodities respectively: Growth in farm production was 6.7% in 2010/11 (ABARES, 2011) and it is estimated that agricultural production will increase by 4.0% in 2011/12 which should provide additional confidence to the sector and assist in stimulating investment; Ongoing debate regarding foreign ownership of Australian agricultural assets may encourage an accelerated investment timetable for some investors to gain exposure prior to any tightening of ownership rules; Strong domestic production outcomes and soft real estate markets provide opportunities for producers to increase scale at more conservative gearing levels and generate economic returns on assets employed; Favourable conditions are providing opportunities for reinvestment into farming enterprises, which may have been previously deferred due to poor seasons and/or repayment of debt. 7

7 ECONOMIC CONDITIONS CURRENCY The Australian dollar has posted strong gains as Australia and the global economy emerged from the Global Financial Crisis (GFC). The gains in the Australian Dollar (AUD) reflects: higher domestic interest rates as the Reserve Bank of Australia (RBA) tightened monetary policy as necessary; strong commodity prices; an improvement in risk appetite; and weakness in the United States economy The AUD traded above parity for most of 2011, posting a new post-float high of USD on 27 July At the time of writing the AUD continues to trade above parity. Contagion risks have re-emerged in Europe. Particular concerns are held for the stability of the Eurozone, due to the threat of default by Greece on its obligations. Italy, Spain, Portugal and Ireland also have debt obligation concerns. A resolution to the debt crisis is yet to be reached with, global confidence likely to remain low in the interim. The historically high levels of the Australian dollar have been attributed to strong commodity prices, a weak United States Dollar (USD) (three year low on cross rates) resulting from a weak US economic outlook and the resultant interest rate differential between Australia and rest of the world. Interest rate relativities and commodity prices are likely to support the local currency over the next year and the AUD is expected to trade in a range of USD over the next year or so. Risk to this forecast however is if the RBA aggressively cuts local interest rates or if the US Federal Reserve starts to tighten US interest rates in Under this scenario the currency could fall back below parity, which is still above the post-float average around USD0.70. Given that the timing of the depreciation in the AUD is largely reliant on the US generating improved economic indicators, this timeframe is viewed as aggressive. The threat of further softening in the US economy and the difficulties being experienced in passing fiscal and monetary policy measures suggest a speedy recovery is unlikely. In the short to medium term, any depreciation in the Australian dollar is most likely to be the result of softening domestic conditions rather than any improvement in the United States. FIGURE 1 AUD/USD & RBA CASH RATE JAN 2005 JAN 2012 Source: Reuters & Reserve Bank of Australia AUD/USD RBA Cash Rate (%) AUD/USD RBA Cash Rate (%) 0.6 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan

8 ECONOMIC GROWTH AND GDP The Australian economy has remained strong and has been one of the best performers of the western world from an economic growth perspective since the GFC and the instability in European markets. The floods and cyclones of early 2011 triggered a sharp drop in GDP in the March quarter (-1.2%) which was recouped in the June quarter (+1.2%). Growth of 1.0% was recorded in the September quarter, bringing annual GDP growth in 2010/11 of +1.9%. Moving into 2012, the Australian economy is expected to rebound strongly, with GDP forecast to rise to 3.25% by mid-year. This rebound will be driven by strong export growth and surging investment in mining and related industries. High commodity prices are supporting not only the Australian dollar but also economic GDP growth. However, concerns have been raised that Australia is increasingly at the mercy of commodity price cycles. Investment continues to be diverted to mining projects as demand and prices prompt continued expansion in the sector. Risks to this forecast will emerge if the global economy continues to slow. In particular, if China slows, this would have a negative impact on Australia s economic growth outlook. However, if Asia and particularly China merely slows to a sustainable pace, then we can expect to maintain solid growth in Australia. Housing remains an area of caution, with residential and non-residential building approvals slow. Housing affordability issues coupled with cost of living pressures have placed pressure on the residential property market, which remains subdued. Investment projects must continue in other sectors of the economy to ensure that if Australia does suffer from a future downturn in the mining industry, the impacts will be softened by sustainable performance in other sectors. The flood reconstruction effort has provided some short-term support, however non-government investment in other sectors remains benign. In this regard, there needs to be more focus on stimulating and developing other sectors of the economy, including agriculture. This is acknowledged by the Government and the RBA, which continues to highlight the two speed nature of the economy, a factor that is proving a challenge with regards to setting monetary policy. Growth (%) FIGURE 2 GDP GROWTH & INFLATION Source: Reuters & Reserve Bank of Australia 6.00% 4.00% 2.00% 0.00% -2.00% Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Inflation Rate (Annual) GDP Growth (Quarterly) 9

9 INTEREST RATES Following almost a year of a stable official cash rate at 4.75%, the RBA cut interest rates consecutively in November and December 2011 by a total of 50 basis points, bringing the official rate to 4.25%. The move to cut interest rates in consecutive months is largely a response to the instability of European debt markets due to current sovereign credit and banking problems. The RBA, following the December RBA Board meeting, commented that the likelihood of a material slowing in global growth has increased. World commodity prices have reflected this and has allowed an easing of monetary policy in a number of countries. The domestic year-on-year CPI outlook remained above the target due to the weather events of early 2011 but will decline as the harvest continues (RBA, 2011). The chart below shows the market sentiment on interest rates over both the short, medium and long-term. The base-case remains that the RBA will look to cut interest rates in early 2012 and then remain sidelined for some time to assess the economic environment. There has been much debate about the outlook for interest rates but the RBA s primary policy objectives is to maintain low unemployment as well as keep inflation in a target band of between 2% and 3%. The most recent RBA Board minutes reaffirmed the central bank s readiness to ease, should conditions warrant. While the three and five year swap rates are good predictors of future interest rates, the fundamental drivers of the RBA cash rate are domestic and international factors that change regularly, and hence provide only a guide to the future movements. We expect that an upward bias will remain however, we anticipate that any increases will be moderate and made over a longer period than previously forecast. Long term interest rates will continue to be determined by the key macroeconomic indicators set by the RBA and at the discretion of the board of the RBA. At the time of writing, financial markets are pricing three and five year swap rates near two year lows at between 4.00% and 4.50%. However, the major influencing factor for 2012 seems to be the stability of the European banking system and restoring confidence to global markets. Forecasts for future movements will continue to change as new economic data is released. FIGURE 3 MONTHLY MAXIMUM BANK BILL RATES APRIL 2010 DECEMBER 2011 Source: Bloomberg Bank Bill Rates % 6.50% 6.00% 5.50% 5.00% 4.50% 30 day 90 day 180 day 3 year 5 year 4.00% 3.50% Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 10

10 AUSTRALIAN AGRICULTURE AGRICULTURAL PRODUCTION FIGURE 4 TOTAL VALUE OF AGRICULTURAL PRODUCTION 2011 The total value of agricultural production reached $48.3 billion for 2010/11 and is forecast to reach a new record of $49.3 billion (Neil Clarke, 2011). This is a record result underpinned by a record wheat harvest of 28.2 million tonnes plus underlying firm grain prices. Excellent seasonal conditions for livestock production in the eastern states coupled with record prices for beef, meat sheep and wool have also been key factors leading to the record result. The adjacent map highlights the excellent 2011 season experienced in Queensland, New South Wales and Victoria. The map shows the value of agricultural production by shire. In Moree and Narrabri (northern NSW) total production was valued at $1.4 billion. This was achieved on the back of excellent yields and firm pricing for winter crops plus the availability of irrigation water which allowed cotton producers to take advantage of historically high prices for the 2011 crop. Strong production results were also recorded in Griffith in southern New South Wales, Mildura in Victoria and Esperance in south-eastern Western Australia. 11

11 RURAL DEBT GROWTH AND DELEVERAGING Bank lending to the rural sector increased sharply over the last decade, with year-on-year growth averaging 10.4% during (RBA, 2010). At the height of the growth, lending by banks to the sector in Australia grew by as much as 17% year-on-year. Bank lending growth peaked in 2004/05 and has fallen sharply since 2008/09. In terms of system credit growth, the contraction in the rural debt market appears to have lagged the broader debt market which contracted sharply with the emergence of the GFC. In absolute terms during the period 2003 to 2008, rural debt increased 92% from approximately $31.4 billion to $60.3 billion (RBA, 2011). This growth was principally driven by drought, farm consolidation and above average growth in property values particularly for cattle properties in Queensland. The drought conditions prevailing across large areas of New South Wales and Victoria for much of the past decade necessitated increased borrowings to maintain operations during low income years. A number of these producers are now focussing on decreasing their debt levels given the more favourable operating conditions. The increase in lending coincided with the large increases in rural property prices experienced in New South Wales and Queensland in particular, as seen in Figure 11, the value of rural land nearly doubled in New South Wales in the period 2001 to A similar increase was recorded in Queensland between 2004 and Over the last two years credit growth has stalled, with a marginal decrease being experienced from 2009 to This plateauing of growth followed by marginal decreases was driven by a number of factors including the tightening of credit markets worldwide following the GFC and a reduction in the appetite for debt amongst borrowers. As seen in Figure 6, the majority of growth in rural lending has been in the $2 million and over segment. This reflects the continued consolidation of farming enterprises and the above system credit growth experienced prior to the GFC plus subsequent tightening of credit markets. FIGURE 5 BANK LENDING GROWTH Source: Reserve Bank of Australia, , % Rural Debt All Banks ($M) Rural Debt ($M) 60,000 50,000 40,000 30,000 20, % 15.00% 10.00% 5.00% 0.00% Bank Lending Growth (%) Year on Year Growth (%) FIGURE 6 RURAL DEBT BY LENDING SEGMENT Source: Reserve Bank of Australia, 2011 Rural Debt ($M) 30,000 20,000 10, Mar-2000 Sep-2000 Mar-2001 Sep-2001 Mar-2002 Sep-2002 Mar-2003 Sep-2003 Mar-2004 Sep-2004 Mar-2005 Sep-2005 Mar-2006 Sep-2006 Mar-2007 Sep-2007 Mar-2008 Sep-2008 Mar-2009 Sep-2009 Mar-2010 Sep-2010 Mar-2011 Sep-2011 $ to less than $ $ to less than $2million Under $ $2 million and over

12 The growth in NSW also reflects the impact of urban sprawl, with agricultural land being converted to residential use. In Queensland, cattle property values experienced growth well above historical averages and the return on investment fell below sustainable and serviceable levels. A combination of corporate and speculative activity fuelled price growth further, leading to an asset bubble which has subsequently been deflated. Figure 7 below shows the level of debt versus value of production since 1990 forecast through to The relationship between debt and production serves as a proxy for gearing levels and returns. In 2005 debt exceeded production and this trend has continued. It is likely that debt levels will continue to moderate relative to production as a result of de-leveraging by primary producers and the reduction in property values. Year-on-year growth for rural lending is expected to remain low in 2012 as confidence in property values, particularly in Queensland, remains benign and as producers look to pay-down debts following a positive result in 2010/11. The positive 2011/12 harvest result in Western Australia should restore some confidence to the Rural Property market. FARM MANAGEMENT DEPOSITS Farm Management Deposits (FMDs) are available to primary producers to set aside income and draw it down when required. They are an effective risk and taxation management tool. The value of FMDs increased sharply at 30 June 2011, reflecting the excellent growing season in the eastern states. FIGURE 7 ESTIMATED DEBT AND VALUE OF FARM PRODUCTION FORECASTS (F) Source Neil Clarke & Associates 80,000 60,000 Total Farm Debt Value of Farm Production $ millions 40,000 20, FIGURE 8 FARM MANAGEMENT DEPOSITS ($000) Source: Department of Agriculture, Fisheries and Forestry Total FMDs ($000) 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep % Total FMDs ($000) 30.00% % Change 20.00% 10.00% 0.00% % % % 13

13 FARM CONSOLIDATION As mentioned earlier, bank debt to the rural sector has increased from $23.2 billion to $60.3 billion since Part of this increase is attributable to the financing of farm consolidation. At the last Agricultural Census conducted by the Australian Bureau of Statistics (ABS) in 2009, it was estimated that there were 120,491 farms in Australia solely dedicated to agricultural production. This is a decrease of 3.7% from 2007 when the ABS estimated the number to be 125,595 farms solely dedicated to agricultural production (National Farmers Federation, 2011). The reduction in farm numbers has occurred as a result of: producers seeking scale efficiencies by increasing holdings through purchases of neighbouring farms; increasing costs of entry principally due to high capital costs (land and equipment); corporate activity increasing with the resultant acquisition of large parcels of property; and farmers leaving the land for a variety of reasons. It is expected that the number of primary producers has continued to decrease due to tough operating conditions, succession planning challenges, increasing complexities and efforts required to run a sustainable enterprise and limited access to capital and/or funding. Recently, debate has been reinitiated about the future of Australian farming and the attractiveness of farming as a career to children of farming families and the broader public. Whilst these issues have prevailed for some time, the dominance of new employment opportunities in rural areas arising from the mining expansion have introduced other alternatives. In this regard, the importance of succession planning has been elevated over recent times however it still represents a key risk to the family farming sector. Notwithstanding this, there does not appear to be any clear and specific national policy response to these challenges. The trend in consolidation is likely to continue as income volatility remains a feature of the agricultural industry. The average age of farmers in Australia is predicted to reach a peak of around 52 years old in the next few years, placing further importance on the succession planning of farming families. This is compared to a low of 44 years old in 1971 (Australia 2020 Summit, 2008). The combination of a reduced desire from younger generations to farm family land and farm consolidation of smaller farming properties, increased mining activity and state and federal governments program of purchasing land for environmental conservation and biodiversity, has seen the area devoted to agriculture reduce dramatically. It is estimated that since 1976, established farming land of more than 100 million hectares has been lost due to urban sprawl, the forestry sector or government purchases. This reduction in land devoted to agriculture and the increase in returns from mining activity has seen the contribution of agriculture to the nation s GDP decline by more than 20% in 35 years (Sprague, 2011). FIGURE 9 RAIN DEFICIENCIES (AWAP HIRES 1900 NOW) 14

14 FOREIGN OWNERSHIP The influence of foreign-owned corporate operators in Australian agriculture, down-stream processing and infrastructure sectors has continued to increase. Large and strategic intermediaries in a number of industries, including grain, beef, dairy, sugar and cotton have been purchased or are being pursued by foreign-owned and controlled entities. Debate has focussed on the future security of Australian food and fibre and the control that can be exerted over markets by these large corporate players. The increased interest from overseas operators in Australian agricultural assets is predicted to continue for the foreseeable future, particularly given the elevation of food security concerns. Australia remains attractive as an investment destination in this regard as it is viewed as politically and economically stable (low sovereign risk) and recognised for having a mature and technologically advanced industry producing high quality commodities. SEASONAL CONDITIONS Seasonal conditions have returned to roughly average after 2011 s extreme weather events including cyclones, floods and droughts. Droughtbreaking rainfall received on the eastern seaboard ensured improved trading prospects. Whilst northern and eastern Australia experienced record rainfall, the Western Australian grain belt suffered from below average rainfall through to the lowest on record in some areas. Graziers were also affected by the extremely dry conditions with record numbers of sheep (over 1 million) and cattle relocated to the central and eastern States/Territory to source feed. Following the strong rainfall events of 2010 and early 2011, which provided excellent moisture profiles in the south eastern states, seasonal conditions have remained positive through much of Follow up rains have been received at key growing times throughout the season and average to above average yields have been obtained over the majority of grain growing areas. Western Australia, in particular, has seen a return to normal growing conditions following the extreme drought of Yields have been favourable for the majority of the recognised wheatbelt, with harvesting all but complete, except for some areas that received Christmas rains. The rainfall outlook for Western Australia and the eastern seaboard is for around a 50 65% chance of exceeding median rainfall levels through to April, which is in stark contrast to the La Niña event of early Livestock producers continue to enjoy good pasture levels, with strong demand from re-stockers looking to rebuild following years of drought in eastern Australia. Northern Australian cattle producers have had exceptional rainfall levels, which created some transport issues in moving cattle. FIGURE 10 CHANCE OF EXCEEDING THE MEDIAN RAINFALL FEBRUARY APRIL

15 RURAL PROPERTY Rural property prices have reflected a sustained period of positive growth in the last decade. New South Wales experienced a large increase in the early part of the decade which was driven by the depth of the market for rural properties and the encroachment of the larger regional centres towards agricultural properties. On a whole, the sharp appreciation in prices reached its peak in the period of 2003 to 2006, with rural properties across the country experiencing strong demand from buyers and thereby underpinning the rise in prices. Funding of rural properties also experienced similar growth in this period as institutions competed for the business of operators eager to expand their land holdings. The onset of the GFC saw international debt markets tighten the availability of funds considerably due to the uncertainty around the stability of the global financial system and credit contraction. As a result, a flight to quality ensued. The fall in market confidence also saw associated falls in consumer spending and downturns in nearly all sectors of the economy. Prices previously being achieved at the height of the market quickly became unachievable, and remain unlikely to rebound to those levels. In particular, the market for large cattle properties in Queensland remains depressed with minimal sales activity for corporate scale properties and prospective purchasers have refocussed on income generating capacity to determine fair market value. Relatively strong sales of properties in the under $2 million bracket have been achieved in South Australia, Victoria and New South Wales following improved profitability in 2010/11. The market for larger properties remains subdued, with most operators requiring another good season to regain confidence in their ability to service any increase in debt. The Western Australian property market has slowed following the worst drought on record, with some farmers now looking to divest assets to relieve debt loads. The volume of properties listed for sale in some districts has placed some downward pressure on prices although all things being equal this is unlikely to be in the same proportion as that experienced in Queensland given the more moderate growth achieved over the last 5 years. In support of this, we continue to see sales being achieved in Western Australia even in the most effected districts. Another important factor is the correlation of land prices with year in year out cropping yields, with Western Australia rarely suffering prolonged state-wide drought conditions, allowing confidence to rebound relatively quickly on the back of positive seasons. On a national basis, confidence in rural property values is expected to remain low and activity subdued with clients requiring another positive season to begin resume expansion plans. We expect to see a measured improvement in the rural property market should the coming season achieve average results. Long-term, a recovery in the Queensland remains at least 18 months away, with prices remaining much lower than pre-gfc levels for the foreseeable future. FIGURE 11 RURAL LAND VALUES AT 30TH JUNE Source Neil Clarke & Associates 120 New South Wales Western Australia 100 Victoria $ Billion Jun-1991 Jun-1992 Jun-1993 Jun-1994 Jun-1995 Jun-1996 Jun-1997 Jun-1998 Jun-1999 Jun-2000 Jun-2001 Jun-2002 Jun-2003 Jun-2004 Jun-2005 Jun-2006 Jun-2007 Jun-2008 Jun-2009 Jun-2010 Tasmania Queensland South Australia

16 COMMODITIES OUTLOOK Australian agricultural producers remain price takers from domestic and international commodity prices. Producers receive the going market rate for their commodities, however the costs of production such as fertiliser and chemicals continue to increase or are static, diminishing margins for producers. An example of this is wheat prices received by Australian growers. Since 1987, the World Wheat Indicator Price has fluctuated from US$202/tonne in May 2007 to a peak of US$453/tonne in March 2008 and back to US$310/ tonne in early June This price volatility can impact the profitability of wheat producers. The pricing of commodities is affected by normal market factors such as worldwide supply and demand from countries to sure-up their wheat supplies. This occurred after the poor 2010/11 harvest in the Ukraine, Russia and China, with supply limited and these countries requiring international grain to meet domestic demand. These factors have ensured that world grain prices remain strong, counteracting some downgrading of grains due to rain and poorer yields in Western Australia. The same holds true for domestic commodity prices. Cattle, lamb and wool indicators move with supply and demand fluctuations, largely due to seasonal conditions. Lamb prices have been at record highs in the last 12 months due to excellent seasonal conditions prompting a rebuilding of flock numbers by producers. Coupled with a shortage of quality lambs for restocking, the price has reached and continues at record levels. These record prices are allowing producers to recover from extended periods of dry conditions. However, prices will inevitably fluctuate and producers will need to ensure their operations can sustain periods of lower commodity prices. Risks are ever-present in agriculture, the key is for operators to be ready to adapt to changing market conditions. Examples of this include the Live Animal Export Suspension and Indonesian Weight Restrictions placed on trade cattle at 350kg. This restriction has forced northern Australian cattle producers to dramatically change their focus to producing lighter-weight beasts to best suit their buyers or find alternative markets for their products. GRAINS 2011/12 Crop Forecasts ABARES has updated its 2011/12 crop forecasts. The winter crop is forecast to be 43.4 million tonnes, a new record and a revision on the earlier ABARES forecast of 41.0 million tonnes. The upward revision was due to excellent finishing rains in September and October and far improved growing conditions in Western Australia, with an above average result being anticipated in many areas. WINTER CROP Crop Production (t) Wheat 28.2m Barley 8.5m Canola 2.3m Other 4.4m Total 43.4m SUMMER CROP Crop Production (t) Rice 0.9m Sorghum 1.9m Cotton 1.1m Other 0.9m Total 4.8m 17

17 WHEAT The 2011/12 season has seen excellent results for large parts of the wheatbelt and a forecast record WA harvest result. Prices for all grains have eased during the 2011/12 season due to improved harvest results in the northern hemisphere and the forecasted record harvest this season. Australian Premium White1 (APW1) wheat continues to trade around $230 - $240 per tonne and this is expected to continue for the remainder of the season. Key points to consider include: The Australian 2011/12 wheat crop is forecast to be 28.2 million tonnes, an increase of 1.4 million tonnes on the 2010/11 season record of million tonnes. Western Australia in particular is forecasting a far improved result with production forecasted to double 2010/11 levels at 10 million tonnes. Wheat exports are predicted to increase by 13.3% to 20.9 million tonnes, based on forecast large opening stocks and increased production for the current season; The value of Australian wheat exports is forecast to rise by 2.9% in 2011/12 to $5.68 billion (ABARES, 2011). This increase is offset by reduced world wheat prices due to improved harvest results in the Black Sea and the forecasted record Australian result. World production is predicted to increase by 5% in 2011/12 to approximately 685 million tonnes on improved results in the northern hemisphere. World closing stocks are predicted to increase by 5% to approximately 205 million tonnes with the stocks to use ratio is forecast to increase to approximately 30% (ABARES, 2011). On the back of a rise of 52% to US$318/tonne in 2010/11, the world wheat indicator price is forecast to average US$295/ tonne in 2011/12 against an expected increase in world export supplies (ABARES, 2011). BARLEY The area sown to barley in 2011/12 was estimated to be 4 million hectares. The areas sown to wheat and canola were predicted to increase more than barley because the prices of those grains are currently presenting more attractive returns. ABARES is forecasting a 4.2% increase in barley production for the 2011/12 season to 8.49 million tonnes. Mirroring a reduction in forecast lower world prices, domestic returns are predicted expected to average lower in 2011/12, with the feed barley price forecast to fall by 12.4% to $190 a tonne and the malting barley price to decrease by 1.2% to $256/tonne. (ABARES, 2011) The price correction is largely due to the improved world production of barley in 2011/12 which saw the Black Sea region and Canada return to normal yields following the poor harvest of 2010/11. In the medium-term, increased world beer consumption will place upward pressure on malting barley prices. FIGURE 12 MAXIMUM APW1 WHEAT & BARLEY PRICES Source Profarmer 600 APW1 Newcastle Price ($/tonne) APW1 Fremantle Malt Barley (GA1) Geelong Feed Barley (F1) Geelong Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 18

18 CANOLA The planting of Genetically Modified (GM) crops in Australia has increased in recent years. According to Australian Oilseeds Federation, the uptake of GM canola has grown from 9,900ha in 2008 to a forecast harvest area of 150,000ha in This is in line with world trends, with the International Service for the Acquisition of Agri- Biotech Applications estimating the area planted to GM crops increased by 14 million hectares to 148 million hectares (10% of the world s croplands) last year. A limited number of local sites accept GM canola with the majority being in New South Wales and Victoria. Western Australian sites accepting GM Canola has increased to seven in 2011/12, but this will improve as grower uptake is increased. A $20-$30 margin between the two varieties has been maintained. The Canola crop is expected to reach 2.3 million tonnes this season, an increase of 7% on 2010/11. BEEF The Eastern Young Cattle Indicator (EYCI), reached record highs in 2011, closing the year at 428 /kg, a new record price. The outlook for beef prices and the cattle industry is positive for Improved seasonal conditions in key producing regions of Queensland, New South Wales, South Australia and the Northern Territory will ensure demand at sales is strong from operators wishing to rebuild herd numbers. The period of 2005 to 2009 saw considerable expansion of beef operations in Queensland as seen in the graph provided by Neil Clarke & Associates in Figure 11. The value of beef properties in Queensland increased in value by around one third, allowing producers to increase debt levels to fund expansion plans. The expansions occurred at the very peak of the rural property market in Queensland. Sales have since become very hard to gain and values of properties are not being maintained. This has been dealt with in more detail in the summary of the Queensland property market (refer page 16). Key considerations for this sector include: As at 30 June 2011, the national herd had increased by 9% to 26.2 million head (ABS, 2011). Cattle slaughtered in 2011/12 is predicted to reduce by 1.8% to approximately 7.9 million head due to the continued efforts to rebuild herd sizes; and higher carcass weights are forecast to increase production by 0.6% to 2.1 million tonnes in 2011/12 (ABARES, 2011). LIVE EXPORT The Federal Government suspension of the export of all livestock to Indonesia for the purpose of slaughter lasted for 29 days in June last year. The impact of the suspension placed northern cattle producers under financial strain with cashflow being materially affected for clients with planned live export sales. ABARE conducted a survey of 1,459 northern cattle producers to gauge the effect of the suspension. The survey found that 46% of producers surveyed intended to temporarily lower costs on capital works and repairs in response to the suspension. FIGURE 13 CANOLA PRICES 2011/12 SEASON GEELONG PORT ZONE Source Profarmer Price $/t GM Canola Canola May Jun Jul Aug Sep Oct Nov Dec Jan-12 cents/kg FIGURE 14 EASTERN YOUNG CATTLE INDICATOR Source MLA, Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 EYCI 19

19 Live cattle exports to Indonesia in 2009/10 accounted for 82% of the total live cattle exports. In 2010/11 it is estimated to be 62% of total live cattle exports and was impacted by a limited release of import permits and a 350 kilogram weight limit for cattle (MLA, 2011). Recently more than 80% of total live cattle exports have been sourced from northern Australia. Producers around Darwin, Katherine and the Kimberley Region have sold more than 50% of their cattle for live export in 2009/10 and are therefore more reliant on live export markets than those in Queensland or around Alice Springs and the Barkly Tablelands (ABARES, 2011) In 2011/12, live exports to Indonesia were estimated to account for 5% of total cattle turn off in volume terms and approximately 4% of the total value of production (ABARES, 2011). The suspension resulted in some cattle originally set for live export being re-directed to domestic saleyards. This could lead to downward pressure on domestic saleyard prices, but on year average terms ABARES is expecting the impact will not be significant. Of greater significance to returns is the appreciation of the Australian exchange rate and subdued demand in Japan. The Indonesian government has also announced its intention to move towards self-sufficiency for beef. The move will cause a cease to the live export of cattle to Indonesian feedlots for finishing. The Federal Government has held discussions with their Indonesian counterparts on the level of Australia s involvement in supplying the breeding stock and beef processing. SHEEP The underlying outlook for sheep markets is expected to remain firm for 2012 and will be driven by continued strong demand for Australian lamb and mutton both locally and overseas against limited available supply. Prices will continue to be underpinned by a reduced national flock, with processors and exporters competing against re-stockers who are looking to take advantage of excellent feed levels following years of drought in some instances. However graziers in Western Australia who de-stocked due to a lack of feed and/or to generate income, will not re-enter the market unless seasonal conditions and prices are favourable. The record high prices for lamb being received in 2010 and early 2011 have eased, with the Eastern States Trade Lamb Indicator (ESTLI) averaging around 500 in December 2011 and early January It is anticipated that the ESTLI will remain at similar levels during The key challenges for sheep producers in 2012 will again be the rebuilding of previously drought effected operations and ensuring long-term viability. Over the next two to three years, we expect the national flock to be rebuilt and exports to the above markets to increase. Key points include: The weighted average saleyard price of lamb is predicted to decrease by 1.1% over 2011/12 to 540 a kilogram after rising by 28.5% in 2010/11 (ABARES, 2011). Lambs slaughtered in 2010/11 reduced by 8% as producers retained lambs for re-stocking in response to the positive price outlook. In 2011/12, slaughter is forecast to increase by 11% to 19.8 million head (ABARES, 2011). The Agricultural Census of 2011 has shown that the national flock increased by 9% in 2010/11 to 74.3 million (ABS, 2011). WOOL The wool industry continues to enjoy a boom in prices being received by wool growers. Increased demand from mills coupled with a reduced flock and price increases for alternate fibres has sent the Eastern Market Indicator (EMI) spiralling upwards from 873 in September 2010 to 1,436 by 23 June This increase has occurred despite a sizeable appreciation in the Australian dollar over the same period. The EMI had eased back to 1,193 at the end of ABARES predict prices to be supported at favourable levels for 2011/12 as a whole, with the EMI forecast to average 1,100 over 2011/12. This compares against 1,132 over 2010/11, a reduction of 1.9%. Sheep numbers are forecast to increase by approximately 5.4% in 2011/12, which in turn will lead to an increase in the number shorn by 3.5% to 88 million. This increase in the number shorn plus improved seasonal conditions in eastern Australia, leads to a predicted increase in wool production of 3.5% in 2011/12 to 381,000 tonnes. Despite the forecast rise in wool production, the total supply of wool is predicted to remain largely unchanged in 2011/12 as wool stocks have been run down over the past year in response to favourable prices (ABARES, 2011). FIGURE 15 EASTERN STATES TRADE LAMB INDICATOR & EASTERN MARKET INDICATOR Source MLA, ,450 ESTLI (Lamb) cents / kg 1,300 1,150 1, Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 EMI (Wool)

20 SUGAR Sugar production in Australia for 2011/12 is estimated at 3.9 million tonnes, up 0.3 million tonnes on the rain affected 2010/11 but still 573,000 tonnes down on 2009/10 production levels. The 2010/11 harvest was the lowest since 1991/92, with, the excessive rainfall resulting in the sugar content of the cane being significantly reduced. The world sugar price indicator is forecast to decline by around 24 per cent in 2011/12 to average US20.9 cents a pound (ABARES, 2011). The forecast decline reflects the expectation that record world sugar production in 2011/12 will enable a rebuilding of world sugar stocks, despite a forecast increase in global consumption. Higher world sugar production will continue to place downward pressure on to world sugar prices. DAIRY The dairy industry in Australia has received much publicity over the last year. The move by major supermarkets to cut the price of house brand milk to $1 per litre has been the subject of a Senate enquiry. The price received by dairy farmers in Australia has remained at increased levels since 2007 although prices fell sharply in 2008/09. The average price has stayed above 34 cents per litre for the better part of four years allowing producers to maintain income, however individual profitability has been impacted if farmers were required to purchase feed through periods of dry conditions in traditional dairy areas. Prices are currently around 38 cents per litre and are forecast to increase by an annualised rate of 0.5% year on year through to 2015/16, or 39.5 cents (IBIS World, 2011). The concern with the recent moves from the major supermarkets is that the reduction in retail milk prices, while currently being absorbed by supermarkets, will be passed onto producers in the long-term, thereby reducing margins and leading to a number of farmers exiting the industry due to non-viability. The outlook for dairying is positive for 2012 with average milk prices remaining at solid levels and the prices for butter and skim milk increasing recently. The major challenge facing the industry will be any negative impact from the price war being conducted by the major supermarkets, or a return to dry seasonal conditions in key dairying areas, forcing up feed bills and placing further strain on cash flows. FIGURE 16 AVERAGE MILK PRICE CENTS/LITRE Source: IBIS World, Price (c/l) 45.0 cents / Litre

21 WATER Seasonal conditions in the Murray- Darling Basin (MDB) have improved following the record rainfall events of late 2010 and early 2011 with prices and market depth in water markets in the next 12 months largely dependent on the market perception of the Murray Darling Basin Plan. An updated Murray Darling Basin plan has been released in response significant public concern being voiced in MDB towns such as Deniliquin and Griffith, where irrigation-dependent agriculture makes up a large proportion of the region s output. The revised plan seeks to establish limits on the quantity of surface water and groundwater that can be taken from the Basin s resources for consumptive use (Murray Darling Basin Plan, 2010). The major concern from residents of the basin is the economic and social impact of the changes to availability of water for irrigation-dependent activities. The widespread concern comes from fears that towns along the river system will suffer greatly from reduced water availability. Politicians, residents and producers are calling for a more consultative method to implementing the Murray Darling Basin Plan. Should the proposed reduction in water available for irrigation be implemented, a reduction in consumer confidence in these towns is expected, along with lower levels of capital expenditure in the surrounding regions due to reduced access to water. FUEL Continued volatility in fuel prices is expected to continue in the short to medium term. Fuel prices in Australia are largely determined by the International Benchmark Price set in Singapore for unleaded and diesel and Saudi Arabia for LPG. Currently unrest in the Middle East is affecting market sentiment over oil prices and this is unlikely to be resolved in the short-term with price volatility expected to continue for much of Australian fuel prices are also influenced by movements in the AUD/ USD exchange rate as the Singapore International Benchmark Price is set in USD. The current strength of the AUD against the USD is keeping fuel prices at current levels. A weakening of the AUD will also lead to an increase in Australian fuel prices. FERTILISER Fertilisers are a key component of many producers operations and as such, the demand for fertiliser is relatively inelastic. The price of fertiliser increased over the last year and these price levels are expected to continue. The global market for fertiliser products is expected to remain at current levels for the medium term, due to political instability in the Middle East and Northern Africa causing concern over the security of supply. Demand has also increased from Latin America, America and China and is forecast to continue through While fertiliser prices are at elevated levels, and forecast to remain so, the variability of fertiliser prices was seen in 2008 with prices, in particular Diammonium Phosphate (DAP) spiking sharply and remaining at the record levels for a sustained period as rapidly expanding demand from China and India outstripped available supplies. Competition from biofuel producers also saw prices pushed up at the same time. Livestock production was also increasing, creating demand for grain and in turn for fertilisers. The decision about when to purchase fertiliser is important, especially when the volatility experienced in fertiliser markets can be seen on Figure 17, where sharp spikes in both DAP and urea have been experienced month to month. FIGURE 17 WORLD FERTILIZER PRICES Source: IBIS World, , DAP US$/mt Price US$/t 1, Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep World Fertilizer Index Urea US$/mt World Fertilizer Index (2005=100)

22 GLOBAL AGRI OUTLOOK The United Nations Food and Agriculture Organisation (FAO) World Food Price Index peaked at 236 points in February 2011, a new record for the index, the eighth consecutive monthly increase and the highest level since January 1990 (FAO, 2011). The index continued to remain around 220 points for the rest of The Index measures average prices of key food products around the world: cereals, meat, dairy, oils/fats and sugar. The FAO has continued to warn of rises in food prices unless considerable efforts to increase the global food crop are made. The World Food Price Index is likely to continue to remain above 200 points in 2012 due to the increased demand from developing nations and variability of seasonal conditions effecting production in key countries. Food security is becoming a major challenge across many countries, both developed and underdeveloped economies, fuelled by growing populations and contraction in productive land. Currently, 33 countries require external assistance for food, with 32 of those being in Africa and Asia (FAO, 2011). The combined effects of harsh seasonal conditions in many of these countries as well as political unrest, has created significant price volatility for the population. This volatility affects the poorest nations first, which compounds the problem. Other more prosperous countries are refocussing domestic efforts to establish food security goals both in terms of quantity and quality. Even within Australia, the focus on food security and foreign ownership is becoming a key issue attracting attention across the two main political parties. Similar debate is occurring in other populous nations that are net importers of food. COMMODITY FORECAST AND PRICES World wheat production is forecast to increase by around 5% to 685 million tonnes in 2011/12 largely due to favourable seasonal conditions in the Black Sea growing region and higher than forecast yields for much of the northern hemisphere (ABARE, 2011). A total of 221 million hectares is forecast to be harvested, an increase of 2% on 2010/11. The increase in the total area harvested can also be attributed to the world wheat price at the time of northern hemisphere plantings, which was averaging over US$300/tonne. The price has since eased as stocks return to normal following the improved seasons for the majority of major producing nations. World coarse grains and oilseed production is also forecast to increase by 4% and 1% respectively, increasing to 1.1 billion tonnes and 455 million tonnes in 2011/12 (ABARE, 2011). World Food Price Index FIGURE 18 WORLD FOOD PRICE INDEX Source: United Nations Food and Agriculture Organisation Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 World Food Price Index 23

23 Higher production is expected in most major producing areas, including China, the European Union, Latin America and the Black Sea region. The 2011 harvest in the key grain growing countries of China, Russia, Ukraine and Canada have been finalised with Russia and the Ukraine recording vastly improved results (increases of 53% and 35% respectively). China s Ministry of Agriculture has reported a three million tonne increase to 571 million tonnes in 2011, the major crops of rice, wheat and corn accounted for 510 million tonnes or 89% of the total harvest, despite earlier concerns over drought conditions in key growing areas. Canada, the world s largest wheat exporter recorded a reduction in total grain production to million tonnes, largely due to flood conditions in key growing areas. The outlook for world grain is for prices to remain at current levels through to The main influence on the world price of grain will be growing demand for all grain varieties. The competition between developers and agricultural interests for arable areas will continue as urban development continues to accommodate the growing world population. The FAO forecasts that the real price of wheat and coarse grains is expected to be 15-40% higher than the period of The overall outlook for global agriculture is positive, but with significant challenges. Increased demand from developing countries will ensure that commodity prices remain strong for the medium long-term, with countries such as Australia, well placed to respond to the increased demand. Volatility in prices and conditions will be present but the need for agricultural produce will only increase in the coming years. Challenges for the future of global agriculture include responding to global demand and ensuring the food security of the most vulnerable. The challenges of climate change will also need to be considered, as growing conditions in key producing areas are at risk should the climatic conditions continue to change. Rice is considered important in terms of global food security. Global production is forecast to reach 480 million tonnes for the 2011/12 season, down 2 million tonnes from original forecasts, but up from the 2010 result of 467 million tonnes and the 2009 total production of 456 million tonnes (FAO, 2011). This improved production result is due to improved growing conditions in China, Bangladesh, Vietnam and India. The positive trend in production is despite poor seasons for Thailand, Cambodia and Laos. The other major and critical global commodity is maize. Maize prices in November 2011 were 16% higher than in November 2010 (FAO, 2011). Strong competition on global markets from feed wheat and concerns about a global economic downturn prompted a slide of prices in the second half of the month, compensating support from the downward revision of the 2011 maize production estimate in the United States. Security of these key food sources is critical for the ongoing development of vulnerable populations. The United Nations is focussing on ensuring that fewer of the world s population are reliant on outside assistance for food or are vulnerable to increasing prices of basic necessities, such as wheat, rice and maize. The FAO estimates that the final beef production number for 2011 will be 65 million tonnes, and will remain at that level into According to the FAO, the steady global beef production for 2011 was influenced by conditions in Australia and New Zealand; with output constrained as both countries rebuilt herd numbers. The US and Canada began the year with low replacement heifer numbers, falling cow numbers and expensive feed supplies. The OECD has released its Agricultural Outlook for In Rural Bank s key markets of grains and beef, production is forecast to increase significantly worldwide while sheep meat is forecast to remain stagnant to 2019, reaching production levels of 15,397 Kt. The emerging livestock markets of Asia and the Middle East will allow scope for a possible increase in Australian live exports of sheep meat and beef. Beef prices are forecast to increase in the decade due to low supplies of beef available on global markets following poor seasonal conditions in key areas in the second part of the last decade. Demand is forecast to increase for beef in the next decade as development continues in Africa and Asia and their demand for more expensive protein such as beef, continues with the development process. FIGURE 19 INTERNATIONAL CEREAL PRICES Source: United Nations Food and Agriculture Organisation USD/tonne Wheat Coarse Grains Rice Oilseeds

24 REFERENCE LIST Australia 2020 Summit, (2008) The Future of Rural and Regional Australia, Canberra: Department of the Prime Minister and Cabinet, p.6. Australian Bureau of Agricultural and Resource Economics (2010) Minerals and Energy, Major development projects April 2010 listing, [online] Available at: energy/energy_10/me10_apr.pdf [Accessed: 3rd May 2011]. Australian Bureau of Agricultural and Resource Economics, (2010) Australian Commodities December 2010, Canberra: Australian Bureau of Agricultural and Resource Economics, p.19. Australian Bureau of Agricultural and Resource Economics, (2011) Australian Commodities March 2011, Canberra: Australian Bureau of Agricultural and Resource Economics, p.16-17, 36-39, Australian Bureau of Agricultural and Resource Economics and Sciences, (2011) Agricultural Commodities September quarter 2011, Canberra: Australian Bureau of Agricultural and Resource Economics and Sciences, pp30-32, Australian Bureau of Agricultural and Resource Economics and Sciences, (2011) Agricultural Commodities December quarter 2011, Canberra: Australian Bureau of Agricultural and Resource Economics and Sciences, pp 8-10, 19-32, Australian Bureau of Agricultural and Resource Economics (2011) Exceptional Circumstances (EC) Boundaries, [online] Available at: data/ assets/pdf_file/0018/ / national-map pdf [Accessed: 16th June 2011]. Australian Bureau of Agricultural and Resource Economics and Sciences (2011) Good prospects for a large winter crop, [online] Available at: data/ assets/pdf_file/0017/ /goodprospects-for-a-large-winter-crop.pdf [Accessed: 17th October 2011]. Australian Bureau of Agricultural and Resource Economics and Sciences (2011) Good prospects for a large winter crop, [online] Available at: data/ assets/pdf_file/0017/ /goodprospects-for-a-large-winter-crop.pdf [Accessed: 17th October 2011]. Australian Bureau of Agricultural and Resource Economics, (2011) Australian Crop Report, December 2011, [online] Available at: warehouse/aucrpd9abcc003/ aucrpd9abcc / ACR11.4_Dec_rev1.0.0.pdf [Accessed: 15th January 2012]. Australian Bureau of Statistics, (2011) Principal Agricultural Commodities, Canberra, [online] Available at gov.au/ausstats/abs@. nsf/detailspage/ ?opendocument [Accessed 5th January 2011] Australian Institute of Petroleum (2011) Historical Averages for Petrol and Diesel, [online] Available at: com.au/pricing/tgp/index.htm [Accessed: 3rd October 2011]. Australian Wool Exchange Ltd (2011) Australian Wool Exports Snapshot, [online] Available at: qualitywool.com/wrap/exp1208.pdf [Accessed: 3rd May 2011]. Bureau of Meteorology (2011) National Seasonal Rainfall Outlook: probabilities for October to December 2011, [online] Available at: ahead/rain_ahead.shtml [Accessed: 4th October 2011]. Bureau of Meteorology (2011) Drought Statement Rainfall Deficiencies 18 months, [online] Available at: au/climate/drought/drought.shtml [Accessed: 4th October 2011]. Bloomberg (2011), Bloomberg, New York Food and Agriculture Organisation of the United Nations, (2011) Global Food Price Monitor December, Rome: Food and Agriculture Organisation of the United Nations, p.1-2. Food and Agriculture Organisation of the United Nations, (2011) Crop Prospects and Food Situation December 2011, Rome: Food and Agriculture Organisation of the United Nations, p.2-6. Food and Agriculture Organisation of the United Nations, (2010) Food Outlook vol 1 November 2010, Rome: Food and Agriculture Organisation of the United Nations, p.6-8. IBIS World, (2011) Dairy Cattle Farming in Australia, Melbourne: IBIS World, p International Monetary Fund (2011) Commodities Monthly CSV File, [online] Available at: org/external/np/res/commod/index. asp-monthly CSV file [Accessed: 4th October 2011]. Meat and Livestock Australia, (2010) Meat and Livestock Australia, 2010, Australian Livestock Export Statistical Review, Australian Livestock Export Statistical Review 2010, p 2, 1(1), p.2. 25

25 Meat and Livestock Australia (2011) Sheep and Lamb Market Alert, [online] Available at: [Accessed: 3rd October 2011]. Murray Darling Basin Authority, (2011) Guide to the proposed Basin Plan, Canberra: Australian Government, p.7. National Farmers Federation, (2011) Farm Facts 2011, Canberra: National Farmers Federation, p.4. Neil Clarke & Associates, (2011) Value of Rural Land at 30 June 1991 to 2010, Bendigo: Neil Clarke & Associates, p.1. Neil Clarke & Associates, (2011) Agribusiness Insights May 2011, Bendigo: Neil Clarke & Associates, p.1. Organisation for Economic Co-operation and Development (2011) OECD-FAO Agricultural Outlook , [online] Available at: x?queryid=23342&vh=0000&amp ;vf=0&l&il=blank&lang =en [Accessed: 20th April 2011]. Profarmer Australia, (2011) Profarmer Newsletter March 23rd 2011, Melbourne: Profarmer Australia, p.4-5. Reserve Bank of Australia, (2011) Minutes of the Monetary Policy Meeting of the Reserve Bank Board, Sydney: Reserve Bank of Australia, p.1. Reserve Bank of Australia (2011) Money and Credit Statistics - D7 Bank Lending to Business, [online] Available at: statistics/tables/xls/d07hist.xls [Accessed: 4th January 2012]. Reserve Bank of Australia (2011) Money and Credit Statistics D9 Rural Debt by Lender, [online] Available at: statistics/tables/xls/d09hist.xls [Accessed: 4th January 2012]. Reuters (2011), Thomson Reuters, New York Sprague, J. (2011) Lucky country all farmed out, Financial Review, 16th May, p.1. The Treasury, (2011) 2011 Budget at a Glance, Canberra: Australian Government, p.3. U.S. Energy Information Administration (2011) Spot Prices for Crude Oil and Petroleum Products, [online] Available at: [Accessed: 4th October 2011]. United States Department of Labour (2011) The Employment Situation January 2011, [online] Available at: news.release/pdf/empsit.pdf, [Accessed: 23rd March 2011]. World Bank, (2011) Food Price Watch February 2011, Washington DC: World Bank, p.1. World Bank, (2011) Global Economic Indicators (GEM) Commodities Database, December 2011, [online] Available at: worldbank.org/ddp/home. do?step=3&id=4, [Accessed: 18th January 2012]. 26

26 Rural Bank Limited ABN AFSL Postal Address: GPO Box 551 Adelaide, SA 5001 Registered Office: Level 1, 27 Currie Street Adelaide, SA 5000 Telephone: Facsimile: DISCLAIMER Rural Bank Limited ABN AFSL and its directors, employees and representatives are referred to in this disclaimer as RBL. RBL makes no representations as to the appropriateness or suitability of the review for any particular purpose. While RBL has attempted to make the information in this review as accurate as possible, no representation or warranty, either express or implied, is made or provided as to the accuracy, reliability or completeness of any statement made or information provided in this review. Any opinions, conclusions or recommendations set forth in this review are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed elsewhere by RBL. RBL is under no obligation to, and does not, update or keep current the information contained in this review. RBL does not accept any liability for any loss or damage arising out of the use of all or any part of this review. All material presented in this review, unless specifically indicated otherwise, is under copyright to RBL. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior written permission of RBL. RUB /12