Australasian Investment Review Stock Market Press Releases and Company Profile

Sydney, Oct 31, 2007 (ABN Newswire) - The annual meeting on Monday of stockfeeds group, Ridley Corp set the scene. It relayed a gloomy message to shareholders about how the company saw its prospects against the backdrop of the drought and the higher dollar.

Yesterday we got the latest on the drought's impact and its impact on rural Australia.

The drought continues to extract a terrible toll on winter wheat and other grain crops with the third cut in estimates from the Australian Bureau of Agricultural and Resource Economics (ABARE) in the past five months.

And that means there's going to be no let up in the upward pressure in food prices from the drought and the lack of water in NSW, South Australia and Northern Victoria.

That's something for us to keep in mind ahead of next week's meeting of the Reserve Bank board which is certain to lift rates.

There's been some solid but isolated rain across the worst hit state, NSW, in the past week and there are forecasts of some more at the end of this week as more normal spring weather patterns return with warm, moist air from the Indian Ocean moving across into Central Australia and NSW.

But that won't be enough to reverse the damage already done by the big dry, which seems to have concentrated itself in NSW, parts of Southern Australia and Northern Victoria.

Queensland has good wet weather in many parts in the past month or so and there doesn't seem to be any concern, according to yesterday's update from ABARE.



ABARE says the winter wheat crop is now forecast at 12.1 million tonnes, compared with a previous estimate of 15.5 million tonnes and the original estimate of 22.5 million tonnes in June. Exports have also been slashed by 18%.(http://www.abareconomics.com/publications_html/cr/cr_07/cr07_oct.pdf)

This forecast is under the one earlier this month from the US Department of Agriculture which estimated Australia's harvest at 13.5 million tonnes, compared to 21 million tonnes in September and 23 million tonnes in the first estimate in August. That will be updated in about two weeks.

The USDA also slashed its estimates for Australia's exports to 9.5 million tonnes. ABARE had estimated exports at around 12.1 million tonnes in its crop report in early September.

But ABARE now says wheat exports will be around 9.85 million tonnes in 2008, compared to the drought hit 8.61 million tonnes exported in 2006-07.

World wheat prices have been firming on the Australian drought, rising demand and falling output in other countries, especially in Europe (and a bit in Canada).

ABARE also said that the barley harvest was now estimated at five million tonnes, against a previous prediction of 5.9 million tonnes and canola at 900,000 tonnes, against 1.1 million tonnes previously (which will be good news for ABB in South Australia where much of our barley is grown).

ABARE said with the exception of Queensland, pockets of northern NSW and southern Western Australia, rainfall during the critical September-October period had been below to very much below average throughout the grains belt.

"As seasonal conditions deteriorated over the critical September–October period, with little or no worthwhile rain and continued above average temperatures, the forecast size of the major winter grain crops in 2007-08 has been further reduced from the forecasts released in September. Areas particularly affected have been parts of South Australia, northern Victoria and New South Wales.

"Livestock have also been affected by the deterioration in seasonal conditions, with farmers continuing to reduce stock numbers. High yardings of cattle, sheep and lambs during September and the first three weeks of October have led to lower saleyard prices."

That might be helping keep meat prices lower than they should be, given the drought. But feedlot costs have soared as the cost of feed has risen with soaring wheat and oil seeds prices here and around the world. Chicken prices are rising for the same reason.

ABARE says the dry is worst in NSW where the large parts of the cropping area received below average rainfall.

"Over a large area of the central northern half of the state, rainfall was the lowest on record, with the remainder of the state receiving very much below average falls.

"This lack of rainfall, combined with hotter than average daytime temperatures and strong winds, has led to the rapid deterioration of crop yield potential and in many areas has resulted in total crop failure.

"Overall it was the fourth driest September on record in New South Wales. Below to very much below average September rainfall was also received in South Australia, and to a lesser extent Victoria. This lack of rainfall has been accompanied by record temperatures, which have exacerbated moisture stress in crops."

Although the combined total of 18 million tonnes for the three major crops is about 42% below the five-year average, it is still about four million tonnes above 2006-07 production. That's a saving grace, so long as there's some rain in the next two months.

ABARE said the best placed states on the mainland were WA and Queensland:

"Average to above average rainfall was recorded in September for most of Queensland's cropping regions. This slightly improved yield expectations, especially for late planted crops in most parts of southern and central Queensland. It also helped to ensure an average to above average crop for most areas of central Queensland.

"The central Queensland harvest is well under way, with more than half of the crop harvested and with yields proving to be better than expected Further rainfall in October has benefited most areas of southern Queensland, where crops were still at the grain filling stage, particularly across the south west and far south west.

"In Western Australia the shire scale wheat forecasting system estimates yields to be close to the long term average across all growing regions, with the exception of a few pockets in the north.
"However, a combination of factors including a late start to the season in the northern half of the grains belt and limited patchy rains during the growing period mean that only the southern grain growing regions are likely to achieve potential."
ABARE said a significant number of winter cereal crops had also been cut for hay in an attempt to recoup some planting costs but looking a bit further out ABARE is a bit more optimistic about summer crops (such as rice) with the Bureau of Meteorology forecasting a 50-50 chance of good rains.

And the news from South Australia about the Murray River is worse with the State Government now saying that there are almost no prospects of extra water allocations.

It seems growers will be encouraged to let some of their fruit trees die while others would be kept alive by water trucked in, as the government maintained allocations at 16% during the 2007-08 season.

AAP quoted the state's River Murray Minister, Karlene Maywald, as saying yesterday: "In light of the dire outlook, I urge all irrigators to not delay making decisions on how to best manage this situation for their own properties.

"Winter and spring are usually when the majority of inflows are received into the Murray-Darling Basin system.

"Unfortunately, this year this is not the case, as we are tracking at near record low inflows again."

Water availability and cost remains the key. It is why some broking analysts are tracking it closely and using the information in their inflation models. Water is now a cost to business that will not get cheap again.


 

AIR publishes a weekly magazine. Subscriptions are free at http://www.aireview.com.au

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