Seasonal conditions: March quarter 2021

Matthew Miller and Rohan Nelson

Key points

• Global crop and pasture production conditions continue to be generally favourable for agriculture despite mixed climatic conditions in some countries.
• Global climate outlooks indicate that average to above average rainfall is slightly more likely between March and May 2021 for most of the world's major grain- and oilseed-producing regions.
• The 2020–21 La Niña appears to have peaked in October to November 2020 as a moderate strength event. La Niña conditions are less likely to persist in 2021–22 or recur over the outlook period to 2025–26.
• In Australia, summer rainfall has benefited 2020–21 production prospects of dryland crops in eastern Australia. Rainfall has been sufficient to maintain average to above average pasture production and support livestock restocking.
• Over the medium-term, conditions for agriculture in Australia are most likely to be adequate but not highly favourable, with a high likelihood of at least one dry year over the next 5 years.

Climate, agronomy and world prices

Prices for many of Australia's most important agricultural commodities are set in world markets. Accurately forecasting price requires an understanding of interactions between demand and supply in world markets. The climate and agronomic conditions faced by producers in importing countries influence the demand for Australia's exports. The climate and agronomic conditions faced by producers in exporting countries influence the competition that Australian exporters face in world markets. Australia's ability to take advantage of export opportunities over the medium term is influenced by climate and agronomic conditions across Australia's agricultural regions.

In this publication, Australia's most important importers and competitors in world markets are analysed in detail for each commodity. For example, we look at how the climate and agronomic conditions faced by farmers in Europe and India affect the demand for Australia's canola and pulse exports. Australia competes in global wheat markets with exports from the Argentina, Black Sea region of the Russian Federation, the European Union and the United States. Conditions for pasture production affect Australian beef exports, which compete in world markets with exports from the United States and Brazil.

Pasture growth is also important. Pastures and rangelands underpin global meat and milk production and are a critical resource for millions of people dependent on livestock for food security. The fodder that livestock are fed is what links them to land use, both directly via grazing and indirectly via traded grain or forage. Pasture, grain and forage growth are highly climate dependent.

Livestock fodder can be broken down into 4 commonly observed types:

1. Grain, which is usually fed as concentrates.
2. Grass for direct grazing and as silage.
3. Occasional feeds, such as cut-and-carry forages and legumes, and roadside grasses.
4. Stovers (fibrous crop residues).

Globally, livestock consume around 5 billion tonnes of feed biomass. Ruminants consume the bulk of feed at around 4 billion tonnes compared with 1 billion tonnes by pigs and poultry.
Overall, grasses comprise some 50% (2.5 billion tonnes) of the biomass used by livestock, followed by grains at 30% (1.5 billion tonnes). Given the strong reliance on pastures and rangelands to support livestock production it is important to monitor the impact of recent climatic condition on vegetation health. The FAO's Vegetation Health Index (VHI) uses vegetation health and the influence of temperature on plant conditions to illustrate the severity of drought.

The 3 broad categories of information available to understand global climate and agronomic conditions for agriculture are:

1. Conditions experienced during growing seasons to date help understand the production prospects for crops that have already been planted, and livestock production and feed demand in the coming months.
2. Climate and agronomic conditions 3 to 9 months into the future. A range of seasonal climate forecasts can be combined with logical inferences from current conditions and trends.
3. Over the medium term, there is much less predictive information to support forecasts for agricultural markets 2 to 5 years ahead. ABARES uses climate scenarios to help understand the uncertainty likely to affect agricultural markets over these time frames.

Global production conditions have been favourable despite La Niña impact

Global rainfall to date

Rainfall over the 3 months to 31 January 2021 was variable for much of the world's major grain and oilseed-producing regions. In the southern hemisphere, rainfall from November to January affects spring and summer crop development and yield prospects. Rainfall over the 3 months to 31 January 2021 was below average across parts of Argentina and much of Brazil. In Australia, the late forming La Niña resulted in variable rainfall. Below average rainfall across Queensland affected crop development and yield prospects for grain sorghum.

In the northern hemisphere, November 2020 to January 2021 rainfall is important for the planting and early development of winter wheat and canola crops before entering dormancy. Rainfall was generally below average across parts of southern China, northern Europe, Mexico, the south of the Russian Federation and the United States. In contrast, rainfall was above average across north-eastern China, India, parts of southern Europe and South-East Asia, and the United Kingdom. Rainfall and temperature determine snow cover extent. Snow cover provides insulation for young plants, protecting them from extreme fluctuations in air temperatures. It also builds soil moisture for the upcoming spring.

Crop conditions

Global crop production conditions continue to be favourable despite mixed climatic conditions across parts of Argentina, Brazil, the Russian Federation, Turkey and the United States. Generally favourable global growing conditions are expected to result in record levels of corn and soybean production in 2020–21 (see Coarse grains and Oilseeds). Mixed growing conditions have reduced expected global wheat production in 2020–21, but record levels of production are still forecast (see Wheat). Meanwhile, favourable growing conditions are expected to increase global rice production year-on-year in 2020–21.

For commodity-by-commodity assessments of the global crop production conditions, see ABARES Weekly Australian climate, water and agricultural update for 18 February 2021.

Pasture and rangeland conditions

Analysis of the Vegetation Health Index (VHI) for the first 10-day period in February 2021 indicates poor vegetation condition across parts of northern and eastern Africa, in southern Argentina, across parts of western and central Australia, western Asia, northern and eastern Brazil, parts of northern Europe, northern Mexico, and the west of the United States. This is partly due to dryness and drought conditions in some areas. Poor vegetation health is likely to reduce the availability of grass for direct grazing, and increase the reliance on other fodder such as feed grains to supplement livestock diets and maintain production. This is likely to lead to increased domestic feed grain consumption in affected areas and will possibly constrain exportable supplies of grain.

Global climate outlook mixed for the remainder of 2020–21

The climate outlook is for average to above average rainfall between March and May 2021 for most of the world's major grain- and oilseed-producing regions. The lingering 2020–21 La Niña event is expected to result in below average rainfall for western Asia, southern Brazil, parts of China and the southern and western United States.

This below average rainfall outlook follows recent dry conditions in parts of Brazil and is likely to adversely affect the development of spring and summer crops, including soybeans and corn. Dry conditions have also slowed the planting of winter wheat in the northern hemisphere. If dry conditions continue in the northern hemisphere as crops exit dormancy in spring 2021, this is likely to constrain production in the Russian Federation and the United States.

For country assessments of the climate outlook and potential impact on production conditions, see ABARES Weekly Australian climate, water and agricultural update for 18 February 2021.

World wheat production at record levels despite the effects of La Niña

Drought conditions associated with the 2020–21 La Niña event affected Argentina's main wheat-producing regions at the critical flowering and grain-filling stages of development. The Buenos Aires Grain Exchange and the US Department of Agriculture (USDA) subsequently reduced forecasts of the Argentine 2020–21 wheat harvest to a 5-year low of around 17.5 million tonnes, 12% lower than 2019–20. A shortfall in Argentine and Pakistani production this season is likely to be more than offset by favourable wheat harvests in Australia and Canada, and higher than expected production in Kazakhstan. However, the Russian and United States winter wheat crops entered dormancy struggling with dry conditions that may reduce grain production in 2021.

Impacts of the La Niña on world wheat supply in 2021–22 yet to be determined

The US hard red winter wheat crop entered its dormant stage of growth in late November/December with the second lowest crop condition score in the past 20 years. Although the 2021 crop is only in the early stages of crop development, dry conditions in the US Southern Plains due to the influence of the La Niña climate event continue to threaten yield prospects.

The US crop also experienced record low temperatures associated with an intense winter storm event. On 15 and 16 February 2021 temperatures fell as low as minus 15˚C to 20˚C across most of Texas and were even lower in Oklahoma and Kansas. These are the 3 main producing states. The record low temperatures are likely to have damaged the dormant US winter wheat crop. The 2020–21 La Niña event has also contributed to dryer than normal soil conditions. This increased the frost risk to plants because soil moisture typically slows cooling. The wheat crop's growing point is still below ground at this time of the year, so soil temperatures are more critical than air or land surface temperatures. Heavy snowfall may help mitigate some damage to the crop. But some plant damage seems likely, given the length of time the crop has already been exposed to extremely low temperatures with little to no snow cover.

Very low temperatures in February are not unusual but the snow cover that usually protects wheat crops against such events is unusually low this year. According to the USDA's Weekly Weather and Crop Bulletin published on 9 February 2021, snow cover was minimal across much of the US Southern Plains. The impact of this possible 'winter-kill' event will become clearer when the wheat crop breaks dormancy in mid- to late March 2021.

Favourable production prospects for oilseeds in South America despite La Niña

Production conditions for soybeans have been mixed in Argentina over the spring 2020 planting season (September to November). Drought affected the crop planted early in October, but recent rainfall supported generally favourable conditions for crops planted in December. Above average rainfall in January went against the general dry trend caused by La Niña conditions. This provided much-needed moisture to crops, which at 28 January 2021 were mostly in good condition.

According to data from the Argentine Ministry of Agriculture at 28 January 2021 a high proportion of soybean crops were in good or very good condition in Buenos Aires, Cordoba and Santa Fe (83%, 90% and 96% respectively). Those 3 provinces account for three-quarters of the country's planted area to soybeans. That compares with 94%, 91% and 94% in the same week last year. Recent rainfall and an improved rainfall outlook mean that the 2020–21 crop is likely to avoid the production losses that were seen during the 2017–18 La Niña event. During the same week in 2018, only 78%, 87% and 81% of soybean crops in the 3 provinces were in good or very good condition. Seven weeks later, the scores had plunged by about a third after an abnormally hot and dry period, and the resulting harvest was among the worst on record.

In Brazil, more typical summer rainfall has returned following La Niña-induced dryness during the spring 2020 (September to November) planting season. The increased rainfall has come just as the majority of the country's soybean crop is setting and filling pods, putting Brazilian farmers on track to harvest a record soybean crop, and easing concerns about South American soybean supplies. Leading market analysts are estimating the 2020–21 Brazilian soybean crop at around 132 million tonnes, eclipsing the previous record of 126 million tonnes produced in 2019–20.

The recent rains will help finish the 2021 Brazilian soybean crop, but the wet conditions are delaying harvest. Late sowing due to dry conditions had already delayed harvest by around 2 weeks. Harvesting has also been made difficult by staggered germination and varying levels of crop maturity within paddocks.

Record corn production expected in 2021–22 despite La Niña impacts in South America

Global production of corn affects Australia's global markets for feed grain (barley and wheat) and canola in biofuel markets. Argentina is the world's third-largest exporter of corn, and production forecasts have been revised downward due to dryness and drought during the spring 2020 planting season.

A lack of sufficient soil moisture in the country's primary production regions of Cordoba, Santa Fe and Entre Rios delayed the planting of early corn. Recent rainfall has improved production prospects in Cordoba, but in the province of Buenos Aires production conditions have deteriorated. These adverse production conditions have led the Buenos Aires Grain Exchange to revise down their production estimate for 2020–21. Argentine growers are now expected to harvest 46 million tonnes of corn, which is 11% lower than 2019–20 production.

The late soybean harvest in Brazil is expected to constrain global corn supply in 2021–22. Brazil's safrinha (second) corn crop is planted after the soybeans have been harvested and represents about 75% of total corn production. With planting delayed by as much as a month, some corn will be planted well outside the ideal seeding window. This increases production risk because it pushes the crop further into the drier autumn months of April and May and delays exports.

Australian agricultural production conditions for the remainder of 2020–21

This analysis of rainfall, production conditions and the climate outlook forms the basis of ABARES forecasts of Australian agricultural production for 2020–21.

Recent rainfall and production conditions

Following a wet spring across much of Australia, rainfall continued to be average to extremely high between November 2020 and January 2021 in key production regions. This rainfall supported average to above average pasture growth across south-eastern and northern Australia, and above average summer crop growth in New South Wales.

However, rainfall was not favourable for agriculture in all of Australia's important agricultural regions. November 2020 rainfall was well below average in most summer cropping regions in Queensland and northern New South Wales. This had the advantage of facilitating the harvest of winter crops, but the disadvantage of restricting the area planted to summer crops. It is also likely to have reduced the yield potential of summer crops planted early in the season, particularly in Queensland. Following low November rainfall totals, substantial December rainfall was favourable for summer crop planting and growth. Average to above average January 2021 rainfall likely further increased the production prospects and yield potential of summer crops planted later in the season.

Significant December rainfall across most of northern and eastern Australia provided conditions for above average pasture growth, and—by reducing the need to purchase feed—increased incentives for livestock restocking. Despite below average January rainfall across parts of northern Australia, rainfall totals and stored soil moisture have been sufficient to maintain average to above average pasture production and encourage farmers to restock.

Irrigated crops

The seasonal drawdown from reservoir storages in the Murray–Darling Basin appears to have slowed in early 2021. At 9 February 2021 the volume of water held in storage was around 13,600 GL, or around 54% of total capacity. This was 5,600 GL or 76% more than at the same time last year. Increased dam storages offer favourable irrigated planting prospects in southern New South Wales (see Natural fibres).

For more recent and detailed assessments of agricultural production conditions, see ABARES Weekly Australian climate, water and agricultural update.

Average or better rainfall likely across northern and eastern Australia

According to the Bureau of Meteorology's climate outlook for March to May 2021 (published on 11 February 2021), there is a high chance of recording close to average March to May rainfall in 2021 across northern Australia and parts of eastern, western and southern Australia. If realised, this rainfall is likely to support average pasture growth in northern Australia and average summer crop production in parts of northern and south-western Queensland and western New South Wales.

Across most remaining cropping regions, there is a 50% chance of recording close to average March to May rainfall in 2021. With average or better levels of soil moisture across most cropping regions, this rainfall is likely to be sufficient to support close to average crop and pasture production as the summer cropping season ends. By recharging soil moisture profiles, rainfall is also expected to support close to average crop and pasture production as winter crop sowing begins. Forecast rainfall may not be sufficient to support average crop production in Queensland cropping regions where soil moisture levels are below average.

Most likely climate scenarios to 2025–26

A lack of seasonal climate forecasts beyond the current year means that ABARES has to make assumptions about the likely climate conditions in years 2 to 5 of the medium-term projections published in March each year.

In this edition of Agricultural commodities, ABARES has expanded the use of climate scenarios for its medium-term agricultural forecasts. The purpose of moving to scenario forecasts is to better explain the factors driving Australia's agricultural markets. This approach was first introduced in March 2020 (see Seasonal climate scenarios for medium term agricultural forecasts) and aims to use more realistic medium-term assumptions that take into account Australia's highly variable and changing climate. This edition utilises more refined climate scenarios based on an analysis of the most likely climate conditions over the 5 years to 2025–26.

For the upcoming 5-year projection period we have some knowledge of the production conditions likely to be experienced during year 1. Following a late-forming but moderate La Niña event in 2020–21, production outcomes for 2021–22 are more likely to be average to above average due to residual soil moisture, above average pasture biomass and an accumulation of fodder (grain and hay) on farms.

The climate conditions likely to be experienced in years 2 to 5 of the medium-term forecasts depend to some extent on the conditions experienced during 2020–21. This means that climate scenarios in ABARES March 2021 medium term forecasts are different to those used in March 2020.

Long-term declines in rainfall mean that the climate conditions most likely to be experienced from year to year over the medium term are below the historical average (with around decile 4 rainfall most likely). However, the variability of Australia's climate means that it is reasonable to expect that at least one year in years 2 to 5 of the medium-term projections will revert to drought conditions, with decile 1 or 2 rainfall. A return to wetter than normal conditions is less likely in years 2 to 5 but is possible.

Likely scenarios for underlying climate drivers in 2021–22 are:

• neutral year – most likely, and most climate models favour this scenario
• multi-year La Niña develops – low probability, with only one half of all La Niña events on record lasting for 2 or 3 years
• El Niño develops in 2021–22 – very low probability, with only 15% of all La Niña events since 1970 having been directly followed by an El Niño event.

Likely scenarios over the remainder of the projection period 2022–23 to 2025–26 are:

• neutral years – most likely outcome in most years, with 24 out of 52 years since 1969–70
• El Niño – likely to occur at least once, having occurred every 3 to 5 years since 1969–70
• La Niña – least likely, having occurred every 3 to 7 years since 1969–70.

For a more detailed explanation of climate scenarios in ABARES medium-term agricultural forecasts see Agricultural overview.

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