Commodity outlook and financial performance of key agricultural industries in the Mallee region of Victoria

Sarah Crooks and commodity analysts

This paper presents the current commodity outlook and the recent financial performance of some key agricultural industries in the Mallee region of Victoria and highlights the performance of grain farms.

The Mallee region covered in this paper is outlined in map 1. The major regional centres include Mildura, Swan Hill and Kerang.

Agricultural sector profile – Mallee

The most recent year for which Australian Bureau of Statistics (ABS) data are available on a regional basis is 2006-07, a year in which drought and reduced availability of irrigation water severely restricted farm production in the Mallee region. The gross value of agricultural production in the Mallee region in 2006-07 is estimated to have been $927 million. This is a substantial reduction from the $1.3 billion estimated for the previous year, which was also characterised by severely dry conditions.

Seasonal conditions in recent years have been particularly challenging, although extreme variability in dryland production has long been a feature of farming in the Mallee region.

In dollar value terms, grapes were the most significant agricultural product in the Mallee region in 2006-07, accounting for 29 per cent or almost $270 million of the total value of agricultural production (figure a). Around 46 per cent of the total value of grape production was accounted for by wine grapes, around 43 per cent by table grapes and a further 10 per cent by dried vine fruits, including sultanas, raisins and currants.

In 2006-07, total cereal grain production accounted for 18 per cent of the gross value of production ($164 million), with wheat accounting for two-thirds of this value and barley for most of the remainder.

Almond production accounted for 9 per cent of the total gross value of agricultural production in 2006-07 ($79 million); stone fruit, 8 per cent ($72 million); milk, 7 per cent; citrus, 7 per cent; sheep and lambs, 6 per cent; vegetables, 4 per cent; and cattle and calves, 3 per cent.

In most years, cereal grains account for the largest share of the region’s total value of agricultural production with wheat alone often accounting for more than 20 per cent of the total value. For example, in 2005-06, the value of wheat produced was $258 million and the value of barley production was $90 million.

Number and type of farms

Australian Bureau of Statistics data indicate that in 2006-07 there were 3418 farms in the Mallee region, with an estimated value of agricultural operations of more than $5000 a farm (table 1).

1 Number of farms, Mallee region, by industry classification a, 2006-07
	Mallee		Victoria
	no.	%	no.	%
Grape growing	1 164	34	1 972	6
Wheat and other crops	865	25	2 513	7
Mixed livestock-crops	306	9	2 567	8
Dairy	258	8	5 808	17
Beef cattle	134	4	10 049	30
Sheep	132	4	3 906	12
Stone fruit	116	3	287	1
Citrus fruit	107	3	140	0
Vegetables	84	2	761	2
All agriculture	3 418	100	33 944	100
a Where the estimated value of agricultural operations is more than $5000. Source: Australian Bureau of Statistics.

Farms are classified in table 1 according to the activities which generate most of their value of production. In the Mallee region, around 34 per cent of farms were mainly dependent on grape growing, compared with only 6 per cent at the Victorian state level. Wheat and other crops farms (farms growing grains, oilseeds or grain legumes) were the second most common farm type in the Mallee region in 2006 07, accounting for around 25 per cent of farms, followed by mixed livestock-crops farms at around 9 per cent. Together these two types of grain growing farms accounted for 34 per cent of farms in the region.

The majority of farms in the Mallee region are small in size, with 60 per cent of all farms having an estimated value of agricultural operations of less than $150 000 a farm (figure b). Around 21 per cent of farms had an estimated value of agricultural operations of between $150 000 and $350 000. Only 4 per cent of farms in the region had more than $1 million worth of agricultural operations in 2006-07.

Employment

Australian Bureau of Statistics quarterly data for November 2008 show that around 129 000 people were employed in the Mallee region, with the healthcare and social assistance industry employing the largest number of people, with approximately 18 per cent (23 000 people) of the total labour force (figure c). The agriculture, forestry and fishing industry accounted for a further 12 per cent (16 000 people). The education and training, retail trade, construction and manufacturing industries each accounted for around 9 per cent of employment in the region.

Farm financial performance

Each year, ABARE interviews producers from the broadacre and dairy sectors of Australian agriculture as part of its annual survey program. Broadacre industries covered in this survey include the wheat and other crops, mixed livestock-crops, sheep, beef and sheep-beef industries. The information collected provides a basis for analysing the current financial position of farmers in these industries and expected changes in the short term. This paper uses data from ABARE’s Australian Agriculture and Grazing Industries Survey (AAGIS) to provide estimates of financial performance indicators (box 1) for farms in Australia, Victoria and the Mallee region. Financial performance is analysed for the main industries operating in the Mallee region.

Broadacre farm performance

In 2007-08, improved seasonal conditions, combined with high prices for grains and sheep meat, led to a doubling of average farm cash income for Australian broadacre farms from the low recorded in 2006-07 (figure d). Higher farm cash income was achieved despite a substantial increase in average total cash costs resulting mainly from a large increase in fertiliser and fuel prices, combined with higher interest rates.

Australian broadacre farm financial performance is projected to improve further in 2008-09, building on the recovery recorded in 2007-08. Average farm cash income is projected to increase from $62 300 a farm in 2007-08 to $80 000 in 2008-09 (table 2). Higher farm cash incomes are expected to be driven by increased grain production, strong livestock prices and reductions in fodder prices and interest rates. However, the improvement in farm financial performance has mainly been in Western Australia, northern New South Wales and Queensland.

In Victoria, continued dry seasonal conditions are projected to result in average farm cash income for broadacre farms declining from $71 600 in 2007-08 to $50 000 in 2008-09. In 2008-09, dry seasonal conditions reduced crop yields, lowered lambing rates and resulted in fodder purchases remaining high. Prices for grains, wool and beef cattle were also lower, but prices for sheep and lambs remained high. With dry conditions continuing throughout most of 2008-09, purchase of cattle for herd rebuilding has been reduced and, together with lower interest rates, has led to a projected small reduction in average total cash costs despite continued high expenditure on fodder.

Historically, average farm cash income for Victorian broadacre farms has been lower than the national average for broadacre farms (figure d). This is partly because of the smaller average farm size in Victoria. In 2007-08, average farm cash income for Victorian broadacre farms exceeded the national average for the first time in more than 30 years. Areas planted to grains and grain crop yields increased more in Victoria than in the other states, leading to a large increase in grain receipts in Victoria. In addition, sheep and lambs accounted for a larger share of broadacre farm receipts in Victoria than in the other states. High sheep and lamb prices in recent years have provided significant support to Victorian broadacre farm incomes.

Average farm cash incomes for Mallee broadacre farms have been above the Victorian average for most of the past 30 years, but have displayed high variability compared with the average farm cash income for grain farms nationally (figure e). Grain farms dominate broadacre farm numbers in the Mallee region.

The longer term trend in the region has been toward an increase in the area planted to grain crops each year and a reduction in sheep numbers. In 2007-08, improved seasonal conditions led to an increase in the area planted to grains and, despite low yields relative to the 10 year average, production of grains increased. Higher production together with favourable grain prices resulted in Mallee producers recording a 30 per cent rise in crop receipts. Sheep and lamb turn-off also increased and receipts from sheep and lamb sales rose by 20 per cent. Despite a 13 per cent increase in total cash costs, farm cash income increased to average $149 800 a farm in 2007-08.

In 2008-09, grain yields were historically low, reducing overall crop production. Combined with lower grain prices, this has led to a projected fall of 25 per cent in grain receipts. Receipts from sheep and lambs, wool and beef cattle are also projected to be lower and with total cash costs increasing, farm cash incomes are projected to fall to an average of $46 000 a farm.

Average farm business debt has increased for Mallee farms in recent years. Some reduction in average debt per farm was recorded in 2007-08, but farm debt remains historically high relative to farm receipts. Increases in land values in recent years have given support to farm equity ratios. At 30 June 2008, the average farm equity ratio for Mallee broadacre farms was 88 per cent, slightly above the national average and slightly below the Victorian average.

 

2 Financial performance, broadacre industries average per farm
		Mallee region
		2006-07	2007-08 p		2008-09 s
Physical
Area of land operated at 30 June	ha	1 740	1 960	(10)	1 980
Sheep numbers at 30 June	no.	600	520	(20)	520
Wool production	kg	2 340	3 070	(30)	2 300
Beef cattle numbers at 30 June	no.	20	20	(40)	20
Wheat area crop sown	ha	563	712	(10)	700
Barley area crop sown	ha	248	263	(13)	328
Total crop area sown	ha	1 024	1 320	(20)	1 166
Receipts
Beef cattle sales	$	6 140	6 700	(40)	8 000
Sheep and lamb sales	$	34 880	41 900	(20)	32 000
Wool	$	3 970	11 900	(20)	10 000
Total wheat receipts	$	141 889	197 347	(16)	140 813
Total barley receipts	$	51 830	56 101	(19)	52 973
Total crop receipts	$	246 950	319 400	(10)	239 000
Total cash receipts	$	345 390	453 500	(10)	360 000
Costs
Beef cattle purchases	$	2 920	1 100	(60)	1 000
Fodder	$	1 030	1 900	(30)	6 000
Fertiliser	$	36 560	58 100	(10)	57 000
Fuel, oil and lubricants	$	29 740	40 700	(10)	40 000
Repairs and maintenance	$	21 360	27 100	(10)	25 000
Interest payments	$	26 620	27 000	(20)	21 000
Hired labour	$	4 290	8 300	(40)	10 000
Total cash costs	$	268 870	303 700	(10)	313 000
Financial performance
Farm cash income	$	76 520	149 800	(20)	46 000
Farms with negative farm cash income	%	25	8	(54)	41
Farm business profit	$	–69 220	29 300	(80)	–67 000
Farms with negative farm business profit	%	75	49	(19)	70
Rate of return e
–excluding capital appreciation	%	–1.6	2.4	(40)	–1.3
–including capital appreciation	%	6.4	6.3	(18)	na
Farm debt and equity
Farm capital at 30 June a	$	2 603 630	2 813 000	(10)	na
Farm debt at 30 June bc	$	371 610	343 700	(20)	na
Equity ratio at 30 June bd	%	86	88	(2)	na
		Victoria				Australia
		2006-07	2007-08 p		2008-09 s	2006-07	2007-08 p		2008-09 s
Physical
Area of land operated at 30 June	ha	700	750	(5)	750	6 580	6 960	(6)	7 000
Sheep numbers at 30 June	no.	1 170	1 210	(9)	1 200	1 330	1 390	(4)	1 400
Wool production	kg	5 190	5 950	(10)	5 400	6 324	6 660	(4)	6 200
Beef cattle numbers at 30 June	no.	140	150	(11)	140	350	360	(4)	370
Wheat area crop sown	ha	94	117	(7)	121	187	228	(5)	251
Barley area crop sown	ha	63	66	(8)	84	70	86	(5)	97
Total crop area sown	ha	265	322	(8)	269	382	468	(10)	450
Receipts
Beef cattle sales	$	76 740	64 200	(14)	59 000	115 250	100 300	(5)	116 000
Sheep and lamb sales	$	40 730	47 100	(11)	48 000	36 650	44 200	(5)	47 000
Wool	$	21 040	33 300	(13)	26 000	28 280	37 300	(4)	30 000
Total wheat receipts	$	23 570	46 440	(10)	39 122	43 610	79 300	(6)	102 000
Total barley receipts	$	11 433	31 683	(11)	21 807	17 840	35 100	(8)	31 000
Total crop receipts	$	57 090	122 890	(8)	106 000	102 920	166 700	(5)	196 000
Total cash receipts	$	218 760	312 100	(5)	279 000	346 950	415 100	(3)	450 000
Costs
Beef cattle purchases	$	17 040	22 200	(39)	15 000	34 410	26 100	(12)	26 000
Fodder	$	15 200	10 000	(25)	11 000	23 150	12 500	(12)	10 000
Fertiliser	$	16 520	29 800	(7)	30 000	24 470	39 300	(4)	45 000
Fuel, oil and lubricants	$	13 710	18 200	(5)	18 000	21 900	28 300	(4)	29 000
Repairs and maintenance	$	16 010	17 900	(6)	17 000	24 870	28 000	(4)	28 000
Interest payments	$	17 980	25 200	(10)	18 000	34 430	43 900	(5)	33 000
Hired labour	$	4 260	6 800	(14)	8 000	12 730	13 400	(6)	15 000
Total cash costs	$	187 910	240 500	(7)	228 000	315 800	352 800	(3)	370 000
Financial performance
Farm cash income	$	30 860	71 600	(16)	50 000	31 150	62 300	(11)	80 000
Farms with negative
farm cash income	%	39	30	(15)	39	45	38	(5)	36
Farm business profit	$	–66 600	–3 700	(343)	–29 000	–64 750	–21 300	(34)	–7 000
Farms with negative farm
business profit	%	87	66	(5)	79	81	70	(2)	69
Rate of return e
–excluding capital appreciation	%	–1.7	1	(41)	0	–0.7	0.8	(22)	0.9
–including capital appreciation	%	5.4	4.9	(15)	na	7.1	2.7	(13)	na
Farm debt and equity
Farm capital at 30 June a	$	2 645 030	3 256 700	(5)	na	3 697 750	4 207 300	(2)	na
Farm debt at 30 June bc	$	237 210	311 800	(9)	na	471 650	547 200	(4)	na
Equity ratio at 30 June bd	%	91	90	(1)	na	87	87	(1)	na
a Excludes leased plant and equipment. b Average per responding farm. c Harvest loans are not included in farm debt. d Equity expressed as a percentage of farm capital. e Rate of return to farm capital at 1 July calculated as farm business profit plus interest paid expressed as a percentage of total farm capital. p Preliminary estimates. s Provisional estimates. na Not available. Note: Figures in parentheses are standard errors expressed as a percentage of the estimate provided (RSEs). For more information regarding RSEs see the methodology section at the end of the paper. Source: Australian Dairy Industry Survey.

Grain farm performance

Grain farms have been defined in this section as all farms classified to either the wheat and other crops industry or the mixed livestock-crops industry (table 1).

Farm cash income for Australian grain farms in 2007-08 rebounded from the drought reduced income of 2006-07, to average $107 100 a farm on the back of record grain prices and production increases in some regions (figure e). This was despite large increases in expenditure on the key crop inputs of fuel, chemicals and fertiliser.

Nationally, the financial performance of grain farms has strengthened further in 2008-09, as increases in grain production are expected to lead to higher crop receipts despite a reduction in grain prices. Cash costs for grain farms have risen in 2008-09, as a result of increases in the area planted to crops. Average farm cash income for Australian grain farms is projected to rise to average $136 000 a farm in 2008-09.

In 2007-08, average farm cash income of Victorian grain farms exceeded the national average. With improved seasonal conditions, the area planted to grains increased by more in Victoria than other states and together with improved crop yields and high grain prices, led to a large increase in grain receipts.

With drier seasonal conditions in 2008-09, grain yields were reduced. This, along with lower grain prices and continued high cash costs, resulted in a projected decline in farm cash income for Victorian grain farms.

Outlook for selected commodities

ABARE’s assessment of the outlook for world economic growth is provided in its quarterly publication, Australian commodities, which also includes market forecasts and detailed discussions of major Australian agricultural, mineral and energy commodities. The forecast summaries presented here for a number of the commodities important in this region are based on information in the June 2009 issue of Australian commodities.

Grains outlook

Wheat

In 2009-10 world wheat production is forecast to be 6 per cent lower than last season’s record harvest. Lower world wheat production will provide some support for the world indicator price. Nevertheless world stocks have increased from their recent lows and are forecast to continue to increase in the short term. As a result, the world wheat indicator price is forecast to average 4 per cent lower in the 2009-10 season compared with 2008-09.

World wheat production is forecast to fall by around 40 million tonnes in 2009-10 under the assumption that yields will be lower than the highs achieved in the previous season. Taking into account opening season stocks, global wheat supplies are forecast to be 3 million tonnes lower in 2009-10 compared with 2008-09.

World wheat consumption is forecast to remain largely unchanged in 2009-10 at around 641 million tonnes. Wheat used for human consumption is forecast to rise. However, this increase is expected to be largely offset by lower use of wheat for livestock feed.

The area sown to wheat in Australia in 2009-10 is forecast to decrease by less than 1 per cent from the previous year to 13.5 million hectares. Assuming that yields return closer to historical average, wheat production is forecast to be around 22 million tonnes in 2009-10, which is a 3 per cent increase from the previous year. However, rainfall during the growing season will be critical for these forecasts to be realised.

In Victoria the major cropping areas received average rainfall throughout autumn. In particular, rainfall in late April 2009 provided most growers with a reasonable start to the 2009-10 winter cropping season. Subsequent rainfall in late May and early June across Victoria was timely for crops already sown. Wheat production in Victoria is forecast to be 2.6 million tonnes in 2009-10, which is around 1.1 million tonnes higher than the drought affected 2008-09 season.

Forecast lower global wheat prices and an expected increase in domestic production are likely to result in wheat prices being lower in 2009-10. The pool return for Australian premium white wheat (APW 10) is forecast to average $291 a tonne, which is 3 per cent lower than the previous year.

Coarse grains

The world coarse grain indicator price (US corn, fob Gulf) is forecast to increase by US$5 a tonne in 2009-10 to average US$182 in 2009-10. World coarse grains production in 2009-10 is forecast to fall slightly to around 1.07 billion tonnes from last season’s record 1.1 billion tonnes. However, higher opening season stocks are expected to result in global coarse grains supplies in 2009-10 being largely unchanged from 2008-09.

In the United States, corn is the major coarse grain produced, accounting for 95 per cent of total coarse grain production in that country. The area planted to corn is forecast to fall by 1 per cent in 2009-10 as a result of an expected increase in plantings of soybeans. Corn production in the United States is forecast to decline to 303 million tonnes in 2009-10, compared with 307 million tonnes in 2008-09.

World coarse grain consumption is forecast to increase slightly to a record 1.09 billion tonnes in 2009-10, the fourth consecutive year in which global consumption could exceed 1 billion tonnes. The increase is forecast to be largely driven by strong growth in industrial use, in particular for ethanol production in the United States.

In Australia, the area sown to barley is forecast to decline by 1 per cent in 2009-10 to 4.5 million hectares but with increased yields, production is forecast to increase by around 893 000 tonnes to 7.7 million tonnes.

Despite an expected rise in world prices, Australian feed and malting barley prices are forecast to fall in 2009-10 as Australian barley production rebounds from the 2008-09 harvest. Australian feed barley prices in 2009-10 are forecast to fall by 4 per cent to average $194 a tonne and malting barley prices to remain largely unchanged at $232 a tonne.

Oilseeds

In 2009-10 the world oilseed indicator price (soybeans, cif, Rotterdam), price is forecast to decline, as an expected significant increase in production will outweigh the effect of any increase in consumption.

World oilseed production is forecast to rise to a record 422 million tonnes in 2009-10, a 7 per cent increase from the previous year. Production of soybeans, which account for around 57 per cent of total oilseed production, is forecast to increase in 2009-10.

World oilseed consumption is forecast to increase by 3 per cent in 2009-10 to 413 million tonnes, as the derived demand for oilseed products increases. Industrial use (mainly biodiesel) of vegetable oil is forecast to increase by 6 per cent, to a record 26 million tonnes in 2009-10. Continued mandated biodiesel use in South America, North America and the European Union is keeping biodiesel production, and hence vegetable oil consumption, growth strong.

Variable rainfall across the Australian grains belt has resulted in a mixed outlook for canola plantings in different regions. The total area sown to canola is forecast to increase by 7 per cent to 1.2 million hectares in 2009-10. Canola production is forecast to decline by 9 per cent in 2009-10 to 1.7 million tonnes, compared with 1.9 million tonnes in 2008-09. Much of the forecast decline relates to Western Australia, after record production was achieved in the previous season.

Sheep meat outlook

Throughout 2008-09 lamb supplies have been tight, while demand has remained strong. As a result, prices during 2008-09 have been high. In 2009-10, lamb slaughter is forecast to increase slightly, as farmers are expected to respond to the high prices of the previous season by breeding more lambs for slaughter in 2009-10. This higher slaughter is expected to translate into higher lamb production for 2009-10. As a result, the Australian weighted average price of lambs is expected to fall by 1.7 per cent to 415 cents a kilogram in 2009-10.

The average slaughter weight of lambs is forecast to increase by 1.5 per cent in 2009-10 compared with 2008-09. This reflects expected lower feed costs, an increased proportion of crossbred lambs slaughtered relative to merino lambs, and an assumed improvement in seasonal conditions. As a result of increased lamb slaughter and heavier slaughter weights, lamb production is forecast to increase by 2 per cent in 2009-10, to 422 000 tonnes.

The weighted average saleyard price of sheep is forecast to increase by 2.6 per cent in 2009-10, to average 200 cents a kilogram. This forecast increase mainly reflects continued strong demand for mutton and live sheep in export markets, combined with expected lower production of mutton. Mutton production is forecast to fall by around 3 per cent in 2009-10, to 235 000 tonnes, reflecting the decreasing national flock and the retention of breeding animals in response to high lamb prices. This decline is smaller than the fall in sheep slaughter and reflects higher expected average slaughter weights as a result of assumed greater pasture availability.

The price forecasts for lamb and sheep are dependent on the assumption of a sustained improvement in seasonal conditions throughout 2009-10. Recent rains have increased re-stocker demand for lambs and sheep, which has contributed to higher prices. If seasonal conditions deteriorate, producers will turn-off more animals which will put downward pressure on saleyard prices.

The volume of lamb exports from July 2008 to April 2009 fell relative to the same period in 2007-08. This decline is expected to continue to the end of 2008-09 given the decline in lamb production. Lamb exports in 2008-09 are estimated to total 151 000 tonnes, a decline of 7 per cent from the previous year.

In 2009-10, lamb exports are forecast to increase by around 5 per cent to 158 000 tonnes, reflecting the expected increase in lamb production. Growth in world demand for Australian lamb in 2009-10 is expected to be weaker than in the past few years because of the effects of the economic slowdown in some export markets.

As a result of lower sheep slaughter, mutton exports in 2008-09 are estimated to fall by 7 per cent, to 147 000 tonnes. In 2009-10, mutton exports are forecast to fall by a further 3 per cent to 143 000 tonnes, reflecting lower domestic mutton production and the effect of weaker income growth in a number of key export markets.

Despite a 10 per cent decline in the Australian adult sheep flock during 2008-09, live sheep exports in 2008-09 are estimated to fall by 2 per cent to around 4 million head and remain similar in 2009-10. The relatively small decline in live sheep exports reflects a significant increase in live sheep export prices, which averaged around 20 per cent higher between July 2008 and March 2009 than for the same period in 2007-08. The value of live exports in 2008-09 is estimated to increase by 16 per cent relative to 2007-08, to $334 million. The value of live sheep exports is forecast to further increase in 2009-10, by 0.5 percent to $336 million.

Wool outlook

The eastern market indicator (EMI) price for wool is estimated to average 795 cents a kilogram in 2008-09, which is 16 per cent lower than in 2007-08. This is the result of the significant decline in demand brought about by the global economic downturn and fast-falling consumer confidence in major wool apparel consuming economies, including the United States, the European Union and Japan. In 2009-10 the EMI is forecast to increase 3 per cent, to 820 cents a kilogram clean. This is an upward revision to the price forecast presented in the March issue of Australian commodities and can be attributed to expected strong growth in Chinese domestic retail sales combined with a downward revision of Australian shorn wool production.

The number of sheep shorn is forecast to decline to 78 million in 2009-10, which is a fall of 7 per cent from the 2008-09 season and is a result of the ongoing decline in the size of the Australian flock. In light of the shrinking flock size and the changing focus of enterprises away from wool toward the production of sheep meat, shorn wool production is forecast to fall by 7 per cent to 330 000 tonnes in 2009-10.

Weak retail activity in the United States and European Union in 2009 is expected to continue to affect 2009-10 orders for semi-durables such as yarn and apparel. This will put downward pressure on demand for Australian raw wool by China as it is the world’s largest wool processor and exporter. However, mitigating the downward pressure on wool demand in 2009 is the forecast of strong domestic retail sales growth for China, the largest global consumer of apparel wool. Australian wool exports in 2009-10 (including greasy wool, semi-processed wool and skins) are estimated to fall by 8 per cent, to 405 000 tonnes greasy wool equivalent. Coupled with lower prices, export earnings are forecast to fall by around 7 per cent, to $2.12 billion.

Beef outlook

The Australian weighted average saleyard price of cattle is forecast to be largely unchanged in 2009-10 at an average of 296 cents a kilogram. This forecast is contingent on the assumption of an improvement in seasonal conditions.

The number of cows and heifers slaughtered is expected to fall as producers begin to rebuild herds. However, this is likely to be offset by an increase in steer slaughter. Beef production forecast to remain slightly less than 2.2 million tonnes in 2009-10, with the total number of cattle slaughtered forecast to remain around 8.8 million head.

Total Australian beef exports are forecast to fall by 2 per cent in 2009-10 to 940 000 tonnes. While exports to the United States are forecast to rise, lower export volumes are expected for Japan, the Republic of Korea and emerging markets, particularly the Russian Federation. Exports of Australian beef to the Republic of Korea are forecast to fall by 5 per cent in 2009-10, as competition from US beef increases. However, export volumes are forecast to remain above pre-2003 volumes (prior to the US beef ban), at around 105 000 tonnes.

Australian beef exports to Japan are also forecast to fall in 2009-10, by around 3 per cent, to 350 000 tonnes. The principal reasons are increased competition with US beef for market share and dampened demand for beef arising from the economic slowdown in Japan.

Australian beef exports to the United States are forecast to increase by 7 per cent in 2009-10 to around 300 000 tonnes. US imports of Australian beef began to increase from September 2008, as the US dollar appreciated and the demand for cheaper beef cuts strengthened as a result of the economic downturn. The demand for cheaper meat, such as ground beef, is expected to remain strong throughout 2009-10.

Australian live cattle exports are estimated to increase in 2008-09 for the third consecutive year, largely reflecting strong demand in Indonesia. With lower economic growth assumed for Indonesia, other South-East Asian countries and the Middle East in 2009 and 2010, the demand for Australian live cattle is expected to be adversely affected, albeit not significantly. Live cattle exports are forecast to decline by 2 per cent to 780 000 head in 2009-10.

Dairy outlook

World dairy product prices declined sharply in 2008-09 following the global economic downturn, with demand for dairy products falling in many regions. In 2009-10 relatively large supplies of dairy products in the major exporting countries combined with continuing subdued demand for dairy products, particularly in emerging economies, are expected to keep downward pressure on world dairy product prices.

World prices for whole milk powder and skim milk powder are forecast to be around 15 per cent lower in 2009-10 than the average prices for 2008-09. In 2009-10, world prices for butter and cheese are forecast to decline by around 25 per cent and 20 per cent, respectively.

The contraction in world demand for dairy products in 2008-09, in response to the slowdown in global economic activity, has reduced exports from major dairy producing countries. This has resulted in increased supplies to the domestic markets of major producing regions, particularly the European Union, the United States and New Zealand, putting additional downward pressure on their domestic prices.

From early 2009, the European Union and the United States commenced purchasing dairy products to support domestic prices. The buildup of government stocks, together with the re-introduction of EU and US export subsidies, is expected to place downward pressure on world dairy product prices through 2009-10.

In 2009-10, lower farm-gate prices and relatively high feed costs are likely to constrain any growth in EU milk production, while US milk production is forecast to contract in 2010. New Zealand milk production in 2009-10 is expected to be close to the record output of 2008-09.

World dairy demand is expected to be under continued downward pressure because of weak world economic activity in 2009-10. In particular, weak economic activity in emerging economies, particularly in the Russian Federation and in Asia, is expected to affect import demand for dairy products, especially in the second half of 2009.

Australian milk production is estimated to rise by 1.7 per cent to 9.38 billion litres in 2008-09. However, production in 2009-10 is forecast to decline by 0.9 per cent to 9.3 billion litres as farmers respond to significantly lower farm-gate prices. Australian milk production in 2009-10 will also be significantly influenced by seasonal conditions, water allocations for irrigation and the cost of supplementary feeds.

The adjustments producers are able to make to accommodate lower milk prices, particularly those producers in the irrigation areas of the Murray-Darling Basin, will be critical in determining Australian milk production in 2009-10. Without sustained, above average rainfall in the main catchment areas, water allocations in 2009-10 are unlikely to return to the relatively high levels of previous years.

With world dairy product prices forecast to remain relatively low in 2009-10, the Australian farm-gate milk price is forecast to decline by 17.5 per cent, to average 33 cents a litre in 2009-10.

Methodology

ABARE surveys are designed and samples selected on the basis of a framework drawn from the Business Register maintained by the Australian Bureau of Statistics (ABS). The framework includes agricultural establishments in each statistical local area classified by size and major industry.

Data provided in this paper have been collected via on-farm interviews and incorporate detailed farm financial accounting information.

The estimates presented have been calculated by appropriately weighting the data collected from each sample farm. Sample weights are calculated so that sample estimates of numbers of farms, areas of crops and numbers of livestock in various geographic regions and industries correspond as closely as possible to the most recently available ABS data as collected in its Agricultural Censuses and updated annually with data collected in Agricultural Commodity Surveys.

The 2008-09 projections are based on data collected via on-farm interviews and telephone interviews in the period 1 October to 9 December 2008. The estimates include crop and livestock production, receipts and expenditure. Modifications have been made to expected receipts and expenditure for the remainder of 2008-09 where significant price changes have occurred post interview.

Reliability of estimates

The reliability of the estimates of population characteristics presented in this paper depends on the design of the sample and the accuracy of the measurement of characteristics for the individual sample businesses.

Only a proportion of businesses in a state are surveyed. The data collected from each sample business are weighted to calculate population estimates. Estimates derived from these businesses are likely to be different from those that would have been obtained if information had been collected from a census of all businesses. Any such differences are called ‘sampling errors’.

The size of the sampling error is most influenced by the survey design and the estimation procedures, as well as the sample size and the variability of businesses in the population. The larger the sample size, the lower the sampling error is likely to be. Consequently, state estimates are likely to have greater sampling errors than national estimates.

To give a guide to the reliability of the survey estimates, sampling errors have been calculated for the estimates. These estimated errors, expressed as percentages of the survey estimates and termed ‘relative standard errors’ are given next to each estimate in parentheses and italics.