Australian farmers commit to wheat despite price slump, threat of dry weather

Australian farmers will maintain wheat acreage during the 2017-18 season at a near three-year high, farmers and analysts said on Tuesday – rejecting incentives to plant alternative crops amid low prices and unfavourable weather forecasts.

Australia – the world’s fourth-largest wheat exporter – will begin planting wheat crops in the next few weeks and despite benchmark prices lingering near a decade low, farmers will maintain wheat acreage at similar levels to last year, the highest since 2014.

Profarmer – a widely watched private forecaster – estimates wheat acreage for the coming season at 13.4 million hectares (33.1 million acres), down just one percent from the 2016-17 season.

“I’m largely planting the same amount of wheat as last year though. While the terms of trade have deteriorated quite badly in the last 12 months, we are a wheat producing country,” said Terry Fishpool, a grain and livestock farmer in Tottenham, 500 kilometres northwest of Sydney.

Wheat planting typically begins around April 25, and wheat prices are down about 10 percent from that date a year ago as ample global supplies weigh on grain prices, which is expected to continue well into next season.

But while wheat acreage is set to remain consistent, production is expected to fall sharply from the last crop that had record yields.

Australia’s chief commodity forecaster last month said expected 2017-18 wheat production of just shy of 24 million tonnes, down 32 percent from the record crop produced last year as dry weather crimps yields.

At 24 million tonnes, that would be similar to 2015’s 24.5 million and 2014’s 23.9 million.

The record production from the last harvest provided a timely boost for the economy. Buoyed by record wheat output, rural commodities accounted for a nearly a fifth of Australia’s fourth-quarter 2016 gross domestic product growth, a huge relief for policymakers after the third quarter’s shock 0.5 percent decline.

Economists already expect the benefit of agriculture to wane, but the threat of an El Nino threatens to add to the drag on the country’s economy.

Australia’s Bureau of Meteorology said the chance of an El Nino is 50 percent.

“Yields are what got farmers through last season. Prices aren’t likely to materially rise higher so an El Nino would really worry farmers and have broader implications,” said Phin Ziebell, agribusiness economist, National Australia Bank.