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Australian Grains 11.2: Grains Outlook for 2011-2012

12 December 2011

World wheat and coarse grains prices are forecast to remain relatively high in 2011–12 as a result of world availability of feed grains remaining relatively low.

Overview

World oilseed prices are forecast to increase, as a result of increased imports by China, higher oilseed crush and growth in feed demand from livestock industries.

Growing conditions over winter were generally favourable in Australia’s major winter cropping regions and crops were generally reported to be in good condition. Rainfall in late August and early September replenished soil moisture profiles and provided a good boost to crops in most regions.

Total winter crop production is forecast to be around 41 million tonnes in 2011–12. Favourable conditions and likely higher production in Western Australia, South Australia and Victoria are expected to more than offset lower forecast production in New South Wales and Queensland.

Of the major winter crops, wheat production is forecast to be 26.2 million tonnes in 2011–12, slightly lower than last year. Barley production is forecast to fall by 11 per cent to 8.3 million tonnes, while canola production is forecast to increase by 7 per cent to 2.3 million tonnes.

Total summer crop area is forecast to be largely unchanged in 2011–12 at 1.5 million hectares. Increased availability of irrigation water is forecast to result in higher cotton and rice plantings. Grain sorghum plantings are forecast to decline by 3 per cent to 617 000 hectares owing to below average winter rainfall and less than ideal subsoil moisture in some growing regions.

The commodity outlook presented in this publication is based largely on the September 2011 editions of the ABARES Australian crop report (ABARES 2011a) and Agricultural commodities (ABARES 2011b).

Total factor productivity growth for the cropping industry as a whole increased on average by 1.9 per cent a year between 1977–78 and 2008–09, while the estimated productivity growth in the mixed crop–livestock industry was 1.4 per cent a year.

Market outlook

Wheat

The world wheat indicator price (US hard red winter, fob Gulf) is forecast to fall slightly in 2011–12 to average around US$310 a tonne. The decline reflects an expected increase in world export supplies stemming primarily from the Black Sea region. This price forecast is a continuation of the high prices of 2010–11, which averaged 51 per cent higher than 2009–10, at US$317 a tonne.

Despite the forecast decline in the average world indicator price for 2011–12, world wheat prices are expected to remain relatively high in the short term. This is because of low world stocks of coarse grains such as corn and barley, which are substitutes for wheat in feed. Relatively low world stocks of coarse grains combined with increased demand for wheat has put significant upward pressure on world wheat prices.

World wheat production is forecast to increase by 4 per cent in 2011–12 to around 679 million tonnes as a result of improved seasonal conditions in the Black Sea region. The total world wheat area to be harvested is forecast to increase by 2 per cent to 223 million hectares.

World wheat consumption is forecast to increase by 2 per cent in 2011–12 to around 673 million tonnes. World food use is forecast to increase by 1 per cent to around 460 million tonnes in line with population growth. World use of wheat for feed is forecast to increase by 9 per cent in 2011–12 to around 122 million tonnes. This increase is the result of a higher corn-to-wheat price ratio, which will encourage substitution of wheat for corn.

World wheat closing stocks are forecast to increase by 3 per cent in 2011–12 to around 198 million tonnes. However, the increase in world consumption will leave the wheat stocks-to-use ratio almost unchanged at around 29 per cent.

Coarse grains

In 2011–12, the world coarse grains indicator price (US corn, fob Gulf ports) is forecast to increase to US$306 a tonne, 10 per cent higher than last season. Driving the increase is the continued decline in world stocks as a result of rising consumption. The world barley price (French Rouen feed) is also forecast to remain high at US$285 a tonne, 2 per cent higher than in 2010–11.

The domestic feed barley price is forecast to fall by 10 per cent in 2011–12 to $195 a tonne because of high feed grain stocks from last season’s harvest. In contrast, the malting barley price is forecast to rise by 3 per cent to $267 a tonne. The combined effects of a forecast second consecutive year of low global malting barley production and rising demand are behind this forecast price rise. In particular, unfavourable growing conditions in the European Union, which is a major global producer of malting barley, have affected production in that region, while rising beer consumption in China and Brazil is forecast to result in higher global demand for malting barley.

After declining last season, world coarse grains production is forecast to rebound by 4 per cent in 2011–12 to a record 1.13 billion tonnes. The increase is driven by a modest recovery in world barley production and record corn production. World barley production is forecast to increase by 6 per cent to 132 million tonnes in 2011–12, after falling 17 per cent last season. Higher production in both Canada and the Black Sea region is expected to more than offset the forecast decline in the European Union. World corn production is forecast to increase by 4 per cent in 2011–12 to a record 855 million tonnes. Higher production is expected in the United States, China, Argentina and Brazil.

World consumption of coarse grains is forecast to rise by around 2 per cent in 2011–12 to a record 1.15 billion tonnes. Higher feed consumption in developing countries, and continued growth in industrial use in the United States and major developing countries, are the principal factors behind this increase.

World closing stocks of coarse grains are forecast to decline by 11 per cent to 142 million tonnes in 2011–12. This will be the second consecutive season of declining stocks and could potentially result in the lowest closing stocks since 2006–07. As a result, the world stocks-to-use ratio is forecast to fall to a record low of 12.4 per cent.

Oilseeds

The world oilseeds indicator price (soybeans, cif Rotterdam) is forecast to average 2 per cent higher in 2011–12 at around US$566 a tonne. World soybean consumption is forecast to exceed production and lower closing stocks, which is expected to place upward pressure on prices. Additionally, China, which accounts for 59 per cent of world soybean trade, is forecast to significantly increase its soybean imports, also contributing to the upward pressure on the world soybean price.

The world canola indicator price (cif Hamburg) is forecast to increase marginally in 2011–12 to US$650 a tonne, reflecting continued high demand and lower production in the European Union and reduced exports from Canada.

World oilseed production is forecast to remain largely unchanged in 2011–12 at around 450 million tonnes. However, unfavourable seasonal conditions in the United States and the European Union had an adverse effect on yields of soybeans, canola and copra in those producing regions.

With high vegetable oil prices continuing to support crush margins, the world oilseed crush is forecast to increase by 2 per cent in 2011–12 to around 385 million tonnes. The forecast increase is expected to be supported by expansion of world crushing capacity, particularly in Canada and the Black Sea region, where higher crush margins have led to construction of new crushing facilities.

World oilseed consumption is forecast to rise by 2.5 per cent in 2011–12 to a record 453 million tonnes. World vegetable oil consumption is forecast to increase by 3 per cent to 155 million tonnes. Population growth and rising incomes in developing countries (especially India and China), as well as sustained growth in industrial demand, are driving this increase. World consumption of protein meal is forecast to increase by 8 per cent in 2011–12 to 270 million tonnes. Growth in intensive livestock production, especially in developing countries, is the driving factor underpinning this rising demand.

Closing world oilseed stocks are forecast to fall by 8 per cent in 2011–12 to around 72 million tonnes.

December 2011

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