Emily Dahl, Charlie Qin, Harry Coë, Cameron Van-Lane and Hamish Morton
- Value of Australian crop production forecast to be second highest on record in 2022–23.
- Value of Australian crop exports forecast to reach a record high in 2022–23.
- High grain and oilseed prices are forecast to persist in 2022–23.
- Russia’s invasion of Ukraine and mounting supply concerns are driving grain price volatility.
- Rising input costs and extreme weather leading to higher fruit and vegetable prices.
- Australian winter crop production forecast to be fourth highest on record in 2022–23.
The gross value of crop production is forecast to reach $45 billion in 2022–23, the second highest on record following the record high of $48 billion in 2021–22 (Figure 1.1). This reflects near-record winter crop production coupled with high world grain and oilseed prices. An excellent start to the winter cropping season and a favourable outlook for winter rainfall are expected to result in above average yields. The gross value of horticulture production is expected to reach a record high in 2022–23, reflecting elevated prices.
In contrast, the gross value of cotton production is forecast to decrease slightly in 2022–23, following a record high in 2021–22, driven by lower production and easing prices. Deteriorating macroeconomic conditions and continued mobility restrictions in China are expected to decrease demand for cotton, and an increase in global cotton production is expected to put further downward pressure on prices.
The gross value of all major crop commodities is forecast to remain high in 2022–23:
- Wheat – $12.7 billion (second highest on record)
- Barley – $3.6 billion (second highest on record)
- Canola – $5.1 billion (second highest on record)
- Cotton – $3.5 billion (second highest on record)
- Horticulture – $13.5 billion (record high)
The value of Australian crop exports is expected to increase to a record of almost $40 billion in 2022–23. The high export values forecast for crop commodities in 2022–23 are driven by high world prices and a significant exportable surplus. A significant increase in cotton and horticulture export earnings is likely to more than offset a fall in the value of coarse grain, oilseed, and pulse exports. Even though grain and oilseed prices are expected to remain very high in 2022–23, the value of coarse grain and oilseed exports is expected to fall in line with a decrease in export volumes reflecting a fall in production. Despite a fall in wheat export volume due to lower production, the value of wheat exports is expected to increase by 6% to a record $11.4 billion in 2022–23 , due to high world prices. The value of sorghum exports is forecast to reach a record high of $813 million in the 2022–23 marketing year, supported by robust demand from China.
Chinese tariffs on Australian barley have led to Australian barley trading at a discount in world markets. Exports continue to be directed towards other markets including Saudi Arabia, Kuwait, Vietnam, the Philippines, and Mexico (Figure 1.2). Despite the discount relative to world prices, the value of barley exports is forecast to reach $3 billion in the 2022–23 marketing year, the second highest on record.
Export-focussed horticulture producers will likely be able to capitalise on higher global prices by increasing export volumes to South-East Asia in 2022–23. Export volumes should be further aided by the redirection of exports from southern hemisphere competitors such as Chile and Peru to North American markets. These countries are redirecting exports to North America due to freight and shipping costs making it increasingly difficult to access Asian markets.
Wine exports are expected to fall in both volume and value terms across 2022–23. The loss of China as a major export market and the subsequent low prices has led to some smaller growers leaving red grapes to rot on the vine instead of harvesting. Over the medium term it is likely some red grape area will be reallocated to other horticulture or livestock production if Chinese import tariffs remain in place. The Australian Government’s ban on luxury goods exports (including wine) to Russia is expected to have a small contribution to the decline in wine exports. In 2021, it is estimated that 1.6 million litres of Australian wine were exported to Russia (approximately 0.2% of exports).
Australian wheat and barley prices are forecast to increase in 2022–23, averaging $522 and $331 per tonne respectively, reflecting the forecast increase in world prices. Grain and oilseed prices are expected to remain high in 2022–23 due to tight global supply and uncertainty surrounding production in Ukraine and trade flows from the Black Sea region. The Russia-Ukraine conflict has caused significant price volatility, leading to a surge in world grain and oilseed prices (especially wheat) (Figure 1.3). Dry conditions in key exporting countries have led to supply shortages, making grain and oilseed markets more sensitive to supply shocks. Other contributing factors in the sustained price surge include significantly increased fuel and fertiliser prices, supply chain disruptions, high freight rates and several countries imposing export restrictions on grains and oilseeds.
In May 2022, wheat prices continued to rally sharply due to ongoing supply concerns about the impact of adverse weather in parts of Europe and the United States, and a 14 May decision by India to limit exports of wheat. Wheat prices are expected to remain volatile in the short term. Prices are likely to ease yet remain high when harvest commences in the northern hemisphere summer, particularly in the major exporters (Canada, the European Union and the United States). Australian wheat prices are expected to continue trading below the world indicator price (US no.2 Hard Red Winter) because of drought conditions in the United States. World coarse grain prices are forecast to remain elevated in 2022–23 due to strong world demand and lower global production. World oilseed prices are expected to fall from historic highs due to rising global oilseed production.
Cotton prices are expected to ease in 2022–23. The Cotlook ‘A’ index is expected to decrease by 21% to US98 cents per pound. High inflation rates in major advanced economies, along with increasing interest rates, and ongoing mobility restrictions in China are anticipated to decrease demand for apparel and cotton lint. Cotton prices are currently trading at an extremely high premium over polyester, with substitution away from cotton expected.
High domestic supply of wine is expected to place downward pressure on prices. This is being exacerbated by large carryover inventories from vintage 2021, flat domestic consumption and the loss of China as a major export market. Demand for white wines has remained strong and prices are forecast to remain stable through 2022–23.
Rising input costs and extreme weather leading to higher fruit and vegetable prices
Consumer prices for fruit (+4.9%) and vegetables (+6.6%) have risen strongly in the March quarter of 2022 due to high transport and fertiliser costs, COVID-19 related supply chain disruptions and flooding events across NSW and QLD. Floods disproportionately affected vegetable and macadamia nut volumes. The Melbourne Wholesale Market showed that prices of lettuce, capsicums and tomatoes rose year-on-year over the March quarter. Macadamia nuts also saw approximately 10% of production impacted by flooding with NSW growers being hit the hardest.
Due to their perishable nature, fruit and vegetable prices are sensitive to supply side shocks like flooding events. In normal times fruit and vegetable prices tend to recover relatively quickly and return to normal as production in other areas becomes available to fill supply gaps. However, in 2022–23 almost all aspects of the supply chain are facing inflationary pressures:
- Increases in fertiliser prices are raising costs for producers or reducing yields if they choose to forgo using fertiliser.
- Fuel prices remain high, raising production costs and transport fees to get produce to domestic markets.
- Global freight issues continue to cause shipping delays hampering access to international markets and further driving up export prices.
- Labour shortages are still prevalent with a tight labour market, and a legislated minimum wage under the horticulture award is increasing competition for efficient and skilled horticultural labourers.
Total winter crop production in 2022–23 is forecast to be the fourth highest on record at almost 51 million tonnes. Winter crop prospects are forecast to be above average, supported by stored soil moisture and an excellent start to the winter cropping season across major cropping regions (see the Australian Crop Report). High prices and supportive seasonal conditions are expected to drive the area planted to canola to a record high of 3.4 million hectares. The area planted to wheat is expected to increase slightly in 2022–23 at 13.2 million hectares. The area planted to canola and wheat is expected to increase mostly at the expense of barley and pulses. Despite the fall in area, barley production is expected to be 6% above the 10-year average to 2021–22 at 10.9 million tonnes.
Australian producers are facing higher input costs, including fertilisers and fuel. Most growers have been able to secure the starter fertilisers they need for sowing ahead of the winter cropping season. However, there remains some risk that the application of nitrogen fertilisers on farms could be rationed during spring at current high prices or if higher yield potentials eventuate due to better-than-expected seasonal conditions. Overall, fertiliser availability is not expected to be a significant issue for winter crop production in 2022–23. High crop prices are also helping to increase the expected returns of applying fertilisers, despite the high costs. Should prices remain high, we would expect to see reduced fertiliser usage with resulting impacts on future yields and grain quality, and this is more likely to be a concern for the 2023–24 season.
Recent wet conditions are expected to have delayed planting of winter crops and harvesting of summer crops in parts of Queensland and New South Wales. If wet conditions return over the coming weeks, the risk of quality downgrades for unharvested summer crops in northern New South Wales and southern Queensland will increase further.
In 2022–23, Australian cotton production is expected to decrease by 3% to 1.2 million tonnes, reflecting less favourable growing conditions (Figure 1.4). Irrigated water availability is expected to remain high in 2022–23. Despite an expected decrease in cotton prices, a strong incentive to plant cotton will remain. ABARES April Water Market Outlook forecast cotton area to decrease in the southern Murray-Darling Basin. However, total Australian irrigated cotton planted area is expected to be similar to 2021–22, while dryland cotton area will depend on seasonal conditions.
Flood events across Northern NSW and Southeast Queensland have impacted the supply of vegetables and nuts out of the region. However, cheap water prices and otherwise favourable growing conditions in non-flood impacted regions over Summer and early Autumn have seen production volumes for fruit and nut varieties rise strongly, offsetting flood impacts.
As for wine production, the 2021 vintage in Australia was the largest since 2006 due to favourable growing conditions across major producing regions and has boosted domestic inventories. Initial reports indicate that vintage 2022 production volumes are in line with the 10-year average. There is currently an abundance of red wine in Australia with high availability across all quality levels. This has led to reduced available storage capacity which is becoming increasingly more expensive. Consequently, production volumes are expected to fall in 2022–23.
Dry conditions continue to threaten yield prospects across major cropping regions in the northern hemisphere, such as the United States, Canada, and parts of the European Union. Furthermore, rising costs of production (already a concern prior to the Russia-Ukraine conflict) are likely to impact planting decisions and fertiliser application rates. High input costs and tighter availabilities will have implications for yields and crop quality worldwide.
World wheat production is forecast to fall from 780 million tonnes in 2021–22 to 776 million tonnes in 2022–23, leading to a decline in world wheat stocks (Figure 1.5). Total consumption and exports are expected to outpace supply in the major wheat exporting countries, including Argentina, Australia, Canada, the European Union, Kazakhstan, the Russian Federation, Ukraine and the United States. Consequently, the stocks-to-disappearance ratio in major exporters is expected to fall to 13.7% (from 15.2% in 2021–22). Drought conditions have limited the yield potential of wheat in the United States, leading to below-average production of 47 million tonnes, 13% below the 10-year average to 2021–22. Similarly, hot and dry conditions are expected to limit the yield potential of wheat in France. Wheat production in India is expected to fall in 2022–23 due to recent heatwaves reducing final yields in northern growing regions.
World corn production is forecast to decrease by 3% to just below 1.2 billion tonnes in 2022–23. Despite high prices, the area planted to corn is forecast to decrease in some regions. Notably, the US Department of Agriculture survey of Prospective Plantings for 2022 forecasts US corn area to decrease by 4% while soybean area increases 4%. High fertiliser prices are a key factor contributing to this substitution towards soybeans, which is a relatively less fertiliser intensive crop. World barley production is forecast to increase by 3% to 149 million tonnes in 2022–23, reflecting a rebound in Canadian production and higher yields in other major producing regions.
World oilseed production is forecast to increase by 8% to 647 million tonnes in 2022–23. This will primarily be driven by an increase in world soybean production, which is expected to increase by 13% to 395 million tonnes. The largest increase in soybean production is expected to occur in Brazil, where favourable seasonal conditions will support higher yields. World canola production is also forecast to increase by 13% to 80 million tonnes in 2022–23. Canada is expected to drive the increase in global canola production, as its growing regions recover from drought.
In 2022–23, world cotton production is forecast to increase by a further 4%. High local cotton prices in India and Pakistan, as well as expected favourable growing conditions, are anticipated to push production up by 13% and 12%, respectively. Meanwhile, persistent dry conditions in cotton producing regions of the United States will see output decrease by 5%.
Global wine production in 2022 is expected to remain in line with 2021 vintage numbers which were slightly below the 10-year average. Scattered frost events have impacted production across Argentina, Chile, and California. However, favourable growing conditions in Europe, a bounce back by New Zealand from a short 2021 season and plentiful South African supply seeking export markets, means global production will adequately cover consumption in 2022. All producing countries are facing growing inflation concerns with transportation, fuel and storage expenses rising alongside industry specific costs for dry goods such as glass bottles, cork, and cardboard.
Ukraine and the Russian Federation are significant producers and exporters of wheat, barley, corn, canola, and sunflower products. Exports from the Black Sea region are likely to be constrained for an uncertain period. Commercial port activity in Ukraine has been suspended since 24 February, leading to local exporters pursuing alternative delivery routes, including via railway to the western borders. The volume of Ukrainian exports that can be directed through the western borders is limited, estimated by some analysts at 10 to 15% of port capacity. Even though most Russian ports are operating, trade finance restrictions and additional ocean freight insurance requirements are expected to constrain exports.
Given uncertainties about access to farmland, and the availability of farm inputs and labour, the outlook for Ukrainian production in 2022 is highly tentative. In western cropping regions, planting of corn and spring wheat has progressed and the upcoming wheat harvest is expected to take place in July. However, winter wheat abandonment is expected to occur in conflict-affected eastern and southern Ukraine. Fieldwork disruptions and lack of fertiliser application will negatively affect yields and reduce production. Wheat production in Ukraine is expected to fall in 2022–23, with estimates of a decline in production ranging from 20% to 40% from last year. The USDA forecasts corn production in Ukraine to fall, due to an estimated 36% decrease in area. The pace of the recovery of Ukrainian agriculture will be influenced by the destruction of infrastructure, disruption to the Ukrainian people and labour force, and the ability for farms to return to planting.
World coarse grain consumption is forecast to increase slightly to 1.5 billion tonnes in 2022–23 due to growing feed demand in China and strong global ethanol demand. Chinese corn consumption has outpaced domestic production since 2017–18, leading to increased corn imports (Figure 1.6). Notably, growth in Chinese corn production has been limited since price support reforms for corn production were implemented in 2016. The recovery of the Chinese pork industry following the outbreak of African swine fever is a key driver of Chinese feed demand for corn and soybeans. China has historically been a major import market for Ukrainian corn. Disrupted Ukrainian grain exports are expected to increase Chinese corn imports from alternative exporters including the United States.
Demand for coarse grains in the United States is also expected to remain strong in 2022–23, especially for industrial uses. The use of corn for ethanol production is expected to increase, supported by recovering demand for transport fuels. Despite high prices for ethanol feedstock including corn, operating margins for ethanol production are expected to remain favourable due to high prices for alternative transport fuels including crude oil.
World oilseed consumption is forecast to increase by 3% to 627 million tonnes in 2022-23. This will be supported by strong biodiesel demand, which is rising in response to high crude oil prices. Oil prices are being driven by strong world demand for gasoline and diesel, which is expected to reach pre-pandemic levels in 2022, according to the March 2022 Resources and Energy Quarterly.
World cotton consumption is expected to fall slightly to 27 million tonnes in 2022–23. Deteriorating macroeconomic conditions in major world economies is expected to decrease consumers’ disposable incomes, decreasing demand for clothing, especially more expensive cotton-based products compared to cheaper synthetic alternatives.
World wine consumption appears to be trending downwards due to the COVID-19-induced surge in purchasing dissipating and higher inflation driving down consumers’ discretionary spending. Adequate global production in 2022 will combine with carryover inventories from 2021 (especially for red varieties) and lower global consumption to ease prices through 2022–23.
Export restrictions contribute to price volatility
Policy responses to higher prices by grain exporting nations will be a significant driver of global grain prices in 2022–23. Over 20 grain and oilseed exporting countries have imposed export restrictions in the form of export bans and export licensing requirements in an effort to lower domestic prices. When countries have done this during previous times of high agricultural commodity prices, it has significantly contributed to both ambiguity and volatility in world grain markets – with higher prices most acutely felt by lower income import-dependent countries.
Outlook for Chinese wheat crop uncertain
Chinese state officials recently reported poor winter wheat conditions, following heavy rains which delayed plantings. If crop production is impacted, Chinese import demand is likely to increase further from already high levels and place additional pressure on world grain markets leading to higher prices. China has recently agreed to permit imports of wheat and barley from all regions of the Russian Federation and there is increased scope for China to accept sizeable volumes of Russian wheat, notwithstanding freight challenges.
Australian exports to partially offset world export supply shortfalls
Record Australian exports are expected to offset some Asian demand for Ukrainian wheat. Abundant exportable supply and competitively priced Australian wheat are allowing Australian exporters to regain markets lost during the 2 years of drought from 2018–19 to 2019–20. In the context of high global freight costs, Australia is well placed to increase exports into our biggest South-East Asian markets due to our proximity.
Negative Indian Ocean Dipole to improve yield prospects
The development of a negative Indian Ocean Dipole is expected to result in above average rainfall across eastern Australia. Above average rainfall is likely to support winter crop production and boost the area planted to summer crops. However, conditions that are significantly wetter than average may delay the 2022–23 winter crop harvest and downgrade grain quality in some regions.
Alternative markets for Australian cotton
South-East Asian countries, such as Vietnam, Bangladesh and Indonesia are continuing to grow as global textile manufacturing hubs. Since the introduction of Chinese import restrictions on Australian cotton, Australian exports to South-East Asian countries have increased dramatically. With ample export supply in 2021–22, Australia is well placed to meet global demand. High freight rates mean that Australia's geographical freight advantage is amplified in South-East Asian markets.
Policy changes not expected to raise fruit and vegetable consumer prices
It is currently too soon to see the impact of the Horticultural Award minimum hourly guarantee for pieceworkers on the market. However, large retailers claim the impact on consumer prices will be minimal as they currently prioritise sourcing produce from ethical sources. It is expected that the minimum wage increase will see increased demand for horticulture positions as workers are provided with more income security, however farm employers are also likely to employ more worker screening practices as they restructure their workforce to increase efficiency. It is expected that horticulture farm workers should become more readily available over the 2022–23 forecast period, easing labour shortages and aiding production volume increases.