Markets

World wheat crop, fodder supplies declining

By Sofia Omstedt

WE ARE now more than halfway through winter, and more than halfway through a year that has so far been unseasonably warm and dry.

Rainfall for the year to date has been well below average in most of southern and eastern Australia and across the country in July.

The Murray-Darling Basin has experienced the driest January-June in 32 years and most of New South Wales is declared in drought.

As a result soil moisture is very much below average across most of mainland Australia.

The dry weather continues to make access to feed difficult and expensive, putting serious strain on balance sheets as the season unfolds.

Last time this column checked in on the hay market, demand had increased after the exceptionally dry autumn; however prices remained fairly steady due to large supplies in southern states.

Since the start of winter continued dry conditions have resulted in a surge in demand and hay prices have consistently been ticking upwards all across the country.

Inventories of hay from previous seasons are all but sold out and fodder has been freighted increasingly large distances to satisfy demand.

Trucks have been a common sight on all main highways, delivering feed to regions in need.

The price impact has been dramatic. In southeast South Australia hay prices have increased 127 per cent over the past two months, in Gippsland 73 per cent, in central South Australia 52 per cent and in the Goulburn/Murray Valley 48 per cent.

Compared to the five year average, prices are elevated in all regions except for northwest Tasmania and the Atherton Tableland.

As winter continues, pasture growth is slow and hay demand is forecast to remain strong. This may add further pressure to already constrained cash balances this season.

At the same time as hay demand surged, grain prices continued to edge upwards. Dry conditions in major exporting countries have resulted in downwards revisions for this year’s wheat crop which in turn led to global price growth.

In Russia this season’s grain harvest is set to be much smaller than last year and the United States revised their wheat output downwards this month.

Global wheat consumption has increased and wheat stocks are set to decrease for the first time in six years.

Trade tension between the United States and China remains a pressing issue for grain trade and is making many nervous.

Meanwhile in Australia many growers are holding onto grain due to the lack of rainfall over the past six months. The current weather outlook remains grim; and if realised prices are expected to end the year higher.

After six months of limited rain and high feed prices, culling rates have increased while cull cow prices fell below the five year average.

In the first six months of 2018 culling rates increased 2.1 per cent compared to last year.

Although it is difficult to determine exactly how many dairy cows have been culled this year, data from the National Livestock Reporting Service indicate that in July close to 7000 cows passed through saleyards, an increase of 14 per cent compared to last year.

Despite the slight increase in culling rates overall slaughter was down 19 per cent in 2017–18 on last year’s figure.

Australia isn’t the only country struggling with dry conditions.

In Europe a hot and dry summer continues to cause headaches for dairy farmers. The remarkably cold winter delayed pasture growth and resulted in cows being housed for longer. Fodder shortages developed in Ireland and caused significant financial stress.

Following the cold winter an exceptionally hot and dry summer emerged. The hot weather has affected the fodder and grain outlook and Europe looks set to produce the smallest grain harvest for six years.

Sustained fodder shortages in several key producing countries could restrict milk production if current conditions continue, offering some hope of higher milk price here.

The Bureau of Meteorology predicts rainfall will be well below average in August across most of the country and below average in eastern Australia for the next three months.

Continued dry conditions are likely to push fodder and grain prices even higher and risk offsetting any gains from stronger global dairy markets.

Substantial rainfall is set to remain at the top of wish lists across regional Australia.

• Sofia Omstedt is an industry analyst with Dairy Australia.