Australia’s Weather – a Two Year Summary

Australia’s Weather – a Two Year Summary

 

Annabelle Honner, Agfarm Freight Coordinator

September 2019

Over the last 24 months, all growing regions of Australia have experienced at least below average rainfall, with parts of north western NSW, the SA Mallee, WA Esperance and northern Adelaide areas receiving their lowest rainfall on record. In fact, the BOM has defined parts of the Murray-Darling basin as being in drought since January 2017. There is no question this has been a prolonged and intense drought, but the question is, why have we been in a drought for so long?

Image source: http://www.bom.gov.au/jsp/awap/rain/index.jsp?colour=colour&time=latest&step=0&map=decile&period=24month&area=nat

There have been a series of complicated and inter-connecting atmospheric weather events, particularly in the last 12 months, that have resulted in continued low rainfall across Australia, particularly in the eastern states. Throughout 2017, there were no strong climatic influences that were affecting Australia’s climate either way until the end of 2017 and into the beginning of 2018, when we experienced a short-lived La Niña. Unfortunately, this event did not have a huge effect on rainfall in Australia and decayed quickly after its initial formation. Following this decay, certain climatic indicators of El Niño began forming, however these indicators were not long lived enough to constitute an El Niño event. Around October 2018, a positive Indian Ocean Dipole (IOD) formed, which lasted until mid-way through December. At the beginning of this year there were once again climatic signs of El Niño forming, but by June this year, the ENSO had returned to neutral and instead, another positive IOD formed, which is still active.

The IOD is influenced by the difference in ocean temperatures between the West and East Indian Ocean. In a positive IOD year, these interactions generally result in moisture shifting away from Australia, instead being pulled towards the east coast of Africa and the Middle East. The IOD can impact anytime from May to December, after which time the onset of the northern monsoon results in an IOD being unable to form. Generally, the northern rainfall onset, which signals the beginning of the monsoon season in northern QLD, NT and WA, occurs anytime from November to early December. This year, predictions are indicating any chances of rainfall onset occurring before November/December are unlikely, meaning the effects of the positive IOD may well be felt right up to the end of this year.

Image source: http://www.bom.gov.au/climate/rainfall-onset/

Recently, the positive IOD has been the main climate driver in Australia, however over the last month or so, a negative Southern Annular Mode (SAM) has developed. The SAM describes the shift of westerly winds and rain-bearing weather systems in the Southern Ocean from their normal position. These shifts move in north-south movements. In a positive SAM, the systems are pushed further south which generally results in increased rainfall over the eastern states. However, in negative SAM events, the systems are pushed north, which results in less rainfall in northern NSW and QLD, but increased rainfall in south-western WA and in Victoria. Generally, these phases are short-lived, lasting anywhere from between a week to a couple of months. The current negative SAM has been predicted by the BOM to be an unusually long-lasting event. Despite this outlook, SAM systems can fluctuate in strength, and there have been indications that the current negative system may be weakening, and even has the potential of developing into a positive SAM event as we come into spring, with some significant rainfall events for QLD and NSW starting to appear on forecasts for the next seven to 10 days.

Despite the short-term rainfall predictions, the long-term outlook for the next three to four months isn’t offering any more reprieve from the dry weather. In the next three months to December, the majority of Australia won’t meet a 50% chance of exceeding their median rainfalls, nearly everywhere is hovering between a 20-30% chance. In fact, the only part of Australia that has a 50% chance or above is the Kimberley region of WA. From November to January, the outlook improves slightly, with most areas looking at a 25-40% chance of receiving above average rainfall. These outlooks do not do much to boost confidence, and expectations of a late rainfall event to pull struggling winter crops through to seed may not be met. If we don’t see a significant fall in the next month or so, we will likely (and some areas are already seeing) an increase in hay production this year as it becomes apparent that some crops may not make it through to harvest. Right now, production estimates are sitting at around 17.5 MMT wheat, 8.5 MMT for barley, and 2.2 MMT for Canola, however these estimates could easily change, depending on what happens weather-wise over the next three to four weeks.

Image source: http://www.bom.gov.au/climate/outlooks/#/rainfall/median/seasonal/0

These long-range rainfall outlooks also lay shaky foundations for the upcoming summer crop plant in QLD and NSW. Significant soil moisture deficits persist through NSW and QLD, and this combined with the lack of forecast rainfall may well be enough to convince many growers to not sow a summer crop. Instead, they may choose to fallow their paddocks in hope for decent rain at the end of summer and into autumn to set them up for a 2020/21 winter crop. Furthermore, water availability for irrigation is becoming increasingly tighter, with ABARES forecasting water prices for the 2019/20 season to reach as high as $650/ML in Southern NSW, VIC and SA, making irrigation an expensive option for most. In its most recent production report, ABARES has forecasted the area planted to sorghum to decrease by 28% from 2018/19 plant to 391,000 ha, 30% below the ten-year average. Area planted to cotton is forecast to reduce by 58% to 145,000ha. Despite a reduction in planting, lint yields are forecast to be average to higher, as nearly the whole crop planted will be irrigated.

Image source: http://www.bom.gov.au/water/landscape/#/sm/Relative/day/-28.4/130.4/3/Point////2019/9/12/

The BOM defines ending rainfall deficiency as the rainfall in the last month already exceeding the 30th percentile for the three-month period commencing that month, or if the rainfall for the past three months is above the 70th percentile for that period. Basically, we need to receive an above-average rainfall for consecutive months for a drought to break. Even though the long-range forecasts are not looking positive, the forecast rainfall being triggered by the formation of a positive SAM may well be enough to get some moisture stressed crops through to harvest, and once the positive IOD breaks down and the northern monsoon begins, hopefully we begin to see a change in the rainfall patterns.

To print or download this Agfarm Market Update, click here.

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WA Market Update – 13/09/2019

Reid Seaby, WA Regional Manager

1.5 minute read

“A lot of variation in crop maturity and potential but all will benefit greatly from a good rainfall event”

The dry start to Spring continues and the reality is, crop expectations are shrinking by the week. This week, parts of the Geraldton, Kwinana and Esperance cropping zones experienced temperatures in the low to mid 30’s, and if these conditions persist then crops will really struggle to hold on. That illusive 20mm rainfall event is becoming more critical by the day as crops draw on what little moisture is left in store.

However, warm temperatures haven’t been the only dilemma in the last couple of weeks, as temperatures last Thursday night and Friday morning fell well below zero in and around Esperance. Areas such as Salmon Gums, Grass Patch, Cascade and West River experienced temperatures as low as -5 for a sustained period which has unfortunately completely frosted some crops. This has left some with no option but to bale for hay, whilst others don’t have that luxury as the crops are too mature to cut.

The less than ideal growing conditions are having a positive impact on grain prices. It was a sea of green this week as bids jumped as much as $19 for some grades. APW1 in Kwinana was up $8 to $328 whilst ASW was the big mover, climbing well over the $300 FIS mark. Feed barley continued to be well bid, up $13 to $290 FIS in Kwinana. Canola’s move was less impressive, up $1 to $622 per tonne. 20/21 wheat is getting back up near $300 per tonne, ending $8 higher at $293.

Pictured: Crops at Kalannie (top) and Bencubbin (bottom)

 

 

Prices as at 12th September 2019

* View of current market pricing. Does not represent current Agfarm bids.

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WA Market Update – 06/09/2019

Reid Seaby, WA Regional Manager

1.5 minute read

Most of WA recorded decent rains over the weekend which will definitely help yield prospects as we move into the critical month of September. Although the heaviest of falls came near the coast, parts of the Geraldton and the north/eastern Kwinana zone had 5–15mm, around 10mm in Esperance and up to 25mm for areas in the Great Southern. Farmers are still keen for a further >25mm event to get them through, because without it, the crop potential will start declining rapidly, particularly as daytime temperatures start to climb.

The forecast is showing nothing for the next 10 days and next week is bringing temperatures in the high 20’s and low 30’s. This will cause soil moisture levels to deteriorate pretty quickly particularly given crops will be consuming lots of moisture as they tiller and come into head. On a positive note, the BOM’s September to November seasonal forecast shows WA is likely to see a wetter than normal September…. Fingers crossed this medium-term forecast is accurate!

Price moves have been positive this week with dry weather on the east coast and the absence of farmer selling maintaining a bullish tone domestically. WA’s barley bids have been well supported by the east coast and this pushed feed values $7/MT higher this week to $277/MT in Kwinana while malt values ended at $305/MT FIS. Wheat was higher across the board with bids jumping about $5/MT for the week. APW in the Kwinana zone is sitting at $320/MT FIS. Canola continues its slow increase with CAN1 in Kwinana bid at $621/MT.

Prices as at 05th September 2019

* View of current market pricing. Does not represent current Agfarm bids.

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WA Market Update – 30/08/2019

Reid Seaby, WA Regional Manager

1.5 minute read

There are three cold fronts expected to pass through WA from today (Thursday) and into the weekend, hopefully dumping 10 – 20mm across some of the agricultural regions. This rain does come after a warm spell in the middle of the week so it should prevent any further yield declines for the time being. Northern cropping areas are really starting to struggle, while any rain received in southern regions will maintain the potential for above average yields.

Due to the late break and lack of subsoil moisture to kick the season off, crops remain heavily reliant on regular rainfall and cool temperatures for the next month or so. For this reason, there is potential for the final grain production figure in WA to swing dramatically. A lot of moisture deprived crops in the north are struggling and without rain and cool temperatures other regions will begin to follow. The potential for downside is very much in play and yields will slide if we get a period of warm, dry weather.

Markets remain pretty thin and new crop selling has been pretty scarce. Barley however seems to be a better story than wheat at the moment and growers have been a little happier to slowly continue their sales program over the past fortnight. Prices haven’t fluctuated dramatically over the last two weeks’, but wheat is generally a little higher while barley is off slightly. APW1 in Kwinana is sitting at $316/MT, H2 is $324/MT and ASW is sitting below $300/MT at $294/MT FIS. Malt barley is still hovering around $300/MT and feed is currently being bid at $270 FIS. 2020/21 wheat has come off $7/MT over the last 14 days.

Prices as at 29th August 2019

* View of current market pricing. Does not represent current Agfarm bids.

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WA Market Update – 16/08/2019

Reid Seaby, WA Regional Manager

1.5 minute read

We’ve seen some good falls over the past couple of days and it couldn’t have come at a better time. There have been a few questions surrounding local production in recent weeks after signs of the weather becoming warmer, increasing the potential for yields and production to deteriorate. But rainfall totals of between 5 – 20mm for the majority of the state has kept things advancing and maintains soil moisture levels. Unfortunately, the rain was a bit variable with some growers luckier than others, particularly around the lakes where there were reports of up to 40mm. Some follow up rain prior to the weekend looks likely and if this favourable trend continues for the next month then average to above average crops are very achievable.

WA grower bids fell away this week following the release of the latest USDA report and the bumper US crop. Given the uncertainty surrounding this year’s production, growers are unlikely to sell too much for the time being, particularly if prices continue to edge lower. Kwinana APW was down $7/MT this week to $313/MT FIS with all other wheat grades falling. Barley bids also fell with feed dropping $5/MT to $276/MT. Canola was effectively unchanged and next season’s APW was down $5/MT, back to $300/MT. Although bids were off this week it’s important to note prices still represent good value and those who have confidence in the season seem happy to slowly but surely chip away with small sales.

Pictured: Crops in Nungarin aren’t distressed but do have a long way to go, hence the need for a soft spring

Prices as at 16th August 2019

* View of current market pricing. Does not represent current Agfarm bids.

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Weather, Prices and Production – What to Expect This Harvest

Weather, Prices and Production – What to Expect This Harvest

 

Chris Coore, Agfarm Advantage Manager

August 15th 2019

We’re less than a month away from Australia’s key growing period and the usual pre harvest jitters have started to set in for growers, consumers and traders. All market influencers are being watched with a keen eye; the weather, current grain prices, overseas news, production estimates, the list goes on. So, this month we’re going to take a look at these elements and what they’re doing to grain prices as we edge closer to harvest.

Australian Weather

Australia experienced a very good start for most of the cropping belt in Western Australia, South Australia, Victoria and Southern New South Wales but since mid-July the tap seems to have been turned off. This has understandably caused an element of panic. After a disappointing 2018/19 season growers, domestic consumers and exporters are all reliant on a more normalised season to replenish stocks and return to a ‘normal’ operating environment. Unfortunately, the radar is showing a dry finish and grain prices are following the outlook. The concern for a potential dry finish has been driven from a positive Indian Ocean Dipole (IOD) phase which generally creates cool ocean waters to form in the east limiting rainfall and causing higher temperatures for parts of Australia.

These weather concerns have caused grower selling around the country to slow keeping a strong bid tone in the current market from end users and exporters as liquidity from the sell side becomes thin. Meaning, in most new crop markets for wheat, barley and canola there are more buyers than sellers and it will likely stay that way until we see a break in weather or another wave of selling.

Image 1 source: http://www.bom.gov.au/climate/outlooks/#/rainfall/median/seasonal/0

Image 2 source: http://www.bom.gov.au/climate/enso/#tabs=Indian-Ocean

Production Estimates

In the early hours of Tuesday the 13th of August, the United States Department of Agriculture (USDA) released the August World Agricultural Supply and Demand Estimates (WASDE) report. The report was ultimately bearish for corn resulting in Chicago Corn futures trading the full daily allowable move down dragging wheat futures down 27 cents/bushel or $AU14.50/MT.

Starting with corn, the WASDE reported world corn production up 3.1 Million Metric Tonnes (MMT) and lowered world demand 5.8MMT resulting in world stocks to be up 8.8MMT.

The WASDE report was neutral for global 2019/20 wheat production for most parts of the world with the US being the exception. The report featured a 4.5% increase in US Hard Red Winter and Spring wheat which, coupled with a startling bearish report for corn, pushed Chicago wheat futures sharply lower. However, there is still concerns for Russia’s final wheat production number, Australia’s new crop production and EU wheat which has allowed cash values to remain stable.

Australia’s Current Grain Prices

Overall, wheat prices across Australia seem to be in line with the current market. Western Australian wheat is pricing close to export demand for new crop, Darling Downs delivered wheat is pricing off full execution from Western Australia, and South Australian and Victorian values are pricing domestic homes in NSW. Australian barley is completely reliant on China demand as we are too expensive for the traditional demand point of Saudi. If the ongoing anti-dumping investigation results in a no ruling and China imports Australian barley in 2020, prices should remain stable. But, if China does not use Australian barley, we will need to price Saudi demand which is $AU25-30/MT lower than today’s values in Western and Southern Australia. The Chinese Anti-Dumping probe will be one to monitor as any developments in this will dictate what happens to local barley prices. The other point to note is how wide the barley/wheat spread is in Australia for new crop. Barley will likely buy more domestic demand due to its discount to wheat.

What will happen to grain prices as we edge closer to harvest?

As Australia enters the key growing period of September, the biggest concern and the key price driver will be weather, something the entire grains industry is closely monitoring. If we see good rainfall during September, grower selling will follow which will push values lower. However, if the dry forecast rings true and production levels continue to creep backwards it’s safe to assume values will remain flat to firm coming into the harvest period as exporters and consumers look to get forward purchases on the books.

To print or download this Agfarm Market Update, click here.

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WA Market Update – 09/08/2019

Reid Seaby, WA Regional Manager

1.5 minute read

Most cropping regions welcomed showers over the last week, keeping things on track for the time being. Although most areas have adequate moisture for now, growers are seeking a good 20mm event to bolster moisture levels and maintain the crop’s potential. Unfortunately, the forecast for the next two weeks doesn’t look very promising and it doesn’t seem many areas will receive significant falls. This will take us to the latter part of August and moisture will start to be of concern as most crops in the state are only at the 3-4 leaf stage and well behind where they normally are for this time of the year.

A dry couple of weeks across most of WA has also kept growers on the sidelines with their grain marketing. The lack of grower engagement and the firmer tone on the east coast has offered support for WA bids. Weakness in the AUD also added support. Kwinana APW was up $5/MT to $320/MT FIS and ASW values are now pushing $300/MT. Next season’s wheat bids were also higher this week, jumping to $305/MT FIS. Feed barley was much stronger, up $11/MT from last week to $281/MT FIS in Kwinana. Canola has been trading in a tight range for the last few months but has recently popped and is now at $616/MT FIS Kwinana, up $10/MT from last week.

Prices as at 8th August 2019

* View of current market pricing. Does not represent current Agfarm bids.

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Term Loans, Overdrafts and Specialist Short-Term Finance

Term Loans, Overdrafts and Specialist Short-Term Finance

5 minute read

The Agricultural lending landscape can seem complicated and difficult to navigate at times. There are multiple reasons farmers seek finance and multiple financial institutions offering a plethora of products. The five loans most commonly adopted in agriculture are short term finance, agribusiness line of credit (overdraft), term loans, livestock finance and equipment finance. The main financial motives are land purchases, capital expenditure or cropping inputs. Before making the sometimes-difficult decision of which product is right for you it is important to get the right advice and prepare the necessary business plan, cash flow projections and other relevant financial information. To make the decision a little bit easier, we’ve put together a quick summary of term loans and overdrafts and how they can complement specialist short-term finance options.

What is a term loan and what is it used for?

A term loan is a loan repaid in regular instalments over a set period of time. Term loans usually last between five and ten years but may last as long as 30 years in some cases. The customer generally has a choice of variable and fixed interest rates and may also have the ability to split the loan between fixed and variable to get that balance of certainty and flexibility. Repayments are generally principal and interest, but most financiers will offer the potential for an interest only period. This is a mechanism some farmers use to delay capital outlay while their assets get to a point of producing a solid income. Term loans are often used to facilitate large purchases such as property or making capital improvements such as new farm buildings or other infrastructure.

What is an overdraft and what is it used for?

An overdraft facility is a credit agreement made with a bank or financial institution that allows an account holder to use or withdraw funds up to an approved limit. The facility works like an approved loan where money can be withdrawn as and when required and the farmer is only charged interest on the amount borrowed and only for the time it was borrowed. The line of credit is generally given based on a client’s assets. The overall limit and the rate of interest charged is determined by the size and nature of the asset which is offered as security. Overdrafts are generally established for farmers who have short term cashflow needs and the balance is either repaid monthly or annually.

There are many different forms and functions an overdraft can have such as assisting cashflow, covering crop inputs, machinery payments, interest costs, term loan repayments, stock purchases etc. Farmers need to be cognisant of what they’re using the overdraft for and ensure the facility they choose meets their requirements. Consideration needs to be given to the loan term, repayment frequency, collateral required, flexibility and costs.

Why specialist short-term finance?

While the two above-mentioned forms of finance will always have their place, other seasonal finance options can at times be more appropriate and, in most instances, complement the above-mentioned loan types. For example, when using an overdraft in tandem with a specialist short-term facility such as Agfarm Accelerate, overdraft funds that may have been allocated to crop inputs can be freed up for other uses such as stock purchases, machinery payments and staff wages, increasing cashflow during the season and potentially decreasing the size of the intended overdraft.

What is Agfarm Accelerate?

Agfarm Accelerate gives broadacre and dairy farmers a line of credit at participating rural merchandisers for crop inputs such as fuel, agchem, irrigation water, fertiliser, lease payments, seed and crop insurance. Although this may seem similar to an overdraft, Agfarm Accelerate takes security over the future crop rather than physical property. The facility is paid post-harvest from commodity sale proceeds when cashflow isn’t as tight. For more information on Agfarm Accelerate and how it can assist your business’s cashflow, call your regional manager on the contact details below or visit agfarm.com.au/finance.

Reid Seaby
WA Regional Manager – 0439 625 853

Kate Phillips
SA Regional Manager – 0438 128 472

Anthony Hall
QLD & NSW Regional Manager – 0400 873 777

James Ryssenbeek
VIC Regional Manager – 0447 743 556

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WA Market Update – 02/08/2019

Reid Seaby, WA Regional Manager

1.5 minute read

WA cropping areas recorded some showers over the past week with 1 – 10mm in the Geraldton zone and 1 – 5mm in the Great Southern and Esperance regions. Falls were lighter in the central parts of the Kwinana zone. Although July was slightly drier than average, crops haven’t suffered because fortunately, they are still sitting on good moisture. However, given the crops are late it means they remain vulnerable to hot and dry weather, making the next month or so critical to production outcomes. Ongoing dryness and warming temperatures through August and September will likely see some yield declines in most areas.

Although markets have been generally moving in the right direction, grower selling remains lean at this point of the season. Local wheat markets were higher as APW1 in Kwinana jumped $5/MT to $315/MT FIS and the spread to ASW1 closed slightly. The malt barley spread on the other hand opened up to $30/MT this week given feed bids dropped $5/MT to $270/MT and malt pushed up to $300/MT FIS Kwinana. Canola bids continue to trade in a tight range.

Prices as at 1st August 2019

* View of current market pricing. Does not represent current Agfarm bids.

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WA Market Update – 26/07/2019

Reid Seaby, WA Regional Manager

1.5 minute read

Not much has changed over the last week as crops in WA continue to become established after the slow start. Although the growth is behind normal, crops still have ample moisture and there is no great urgency for more rain at this stage. As we near the end of July the general consensus is a good rain in August will maintain the rage and a 20mm+ event in September will be required to assist grain fill and enable the crops to meet their potential. Production prospects do remain on a knife’s edge however and final yields will be heavily influenced by the spring. With the BOM forecasting an even chance of average rainfall during August – October we are likely to see some variability within regions, depending on if, where and when the rain falls.

Very little has changed fundamentally within grain markets and as a result, there has been limited grower selling the past week. The Black Sea region is coming to the end of their harvest and while there was some speculation the dry end to their season may impact production, there are now reports showing both production and quality have in fact increased. Despite this, bids in WA were well supported this week. 2019/20 wheat bids were up about $10/MT with APW1 landing at $310/MT FIS in Kwinana. Barley bids were also higher with feed up $16/MT to $275/MT FIS. Canola bids jumped back over $600/MT to $605/MT FIS Kwinana.

Prices as at 25th July 2019

* View of current market pricing. Does not represent current Agfarm bids.

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