Bumper Australian crops unlikely to provide relief at the cash register

Australia is set for its third bumper season of crops in a row, but the increased production will probably bring little relief at the cash register as rising global demand pushes prices skyward.

Australian farmers will plant an area almost the size of England this winter as they try to take advantage of soaring global food prices and a third year of good rains.

Most farming areas have had good rains for a third winter, and even South Australia has lately had falls that closed some of the gap with historical norms.

Other challenges include higher costs for diesel and agrochemicals from pesticides to fertilisers. And while prices have been hitting record levels globally, limited export capacity has hindered exports, meaning farmers have missed out on some of the best prices, he said.

While grocery food prices rose 5.3% in the year to March, according to ABS data, they rose 4% in the previous three months alone, she said.

By some measures, the risks are more elevated than during that last major spike in food prices in 2007-08 that led to social upheaval in the Middle East, among other areas.

Back-to-back annual La Niña weather patterns in the Pacific have also contributed to poor harvests, ANZ said. (Recent climate modelling shows the current La Niña will linger longer than expected, with the possibility of it reforming later in 2022.)

The share of global corn stockpiles held by China is even higher.

Even so, the Chinese government is encouraging farmers to plant more grains to head off higher food prices, ANZ said.

While wheat plantings in Australia will be large by historical levels, yields may fall from the highs of recent years.

Rabobank in its report noted Australian farmers have been investing heavily in new storage capacity to cope with increased production and also the limited capacity of grain handlers and exporters to move their crops.

Supply chain snags, however, mean some of the additional spending is not resulting in the equipment arriving.