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

Bella Liao and commodity analysts

This paper presents the current commodity outlook and the recent financial performance of some key agricultural industries in Victoria and highlights the performance of the wheat and other crop industry, mixed livestock-crops industry and sheep industry. The financial performance of broadacre farms in the Wimmera region is also discussed.

In this paper, the agricultural sector profile for Wimmera has been compiled from the Australian Bureau of Statistic’s Wimmera Statistical Division (map 1). The Wimmera region, as defined, includes the major regional centres of Horsham and Stawell. However, the analysis of farm performance for the Wimmera region, presented later in the paper, is provided for a slightly larger area extending further east in the centre of the region (map 2).

Agricultural sector profile – Wimmera

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 severely restricted farm production in the Wimmera region. The gross value of agricultural production in the Wimmera region in 2006-07 is estimated to have been $575 million, which is 45 per cent less than the $837 million estimated for the previous year.

In dollar value terms, cereal grains were the most significant agricultural product for the Wimmera region in 2006-07, accounting for 24 per cent or almost $135 million of the total value of agricultural production (figure a). Barley was the most significant cereal crop, accounting for almost half the value of grain production, with wheat accounting for the majority of the remainder. Oats were also a significant cereal crop. In most years wheat is the most important crop, often contributing more than 20 per cent of the region’s gross value of agricultural production. On average, the Wimmera region is the second largest wheat producing region in Victoria, after the Mallee region.

Sheep and lamb production accounted for 23 per cent of the total gross value of agricultural production in 2006-07 ($133 million) and wool production accounted for 14 per cent ($81 million). Plant nurseries accounted for 13 per cent of the value of production, with their relative contribution lifted by the effect of drought lowering production of other agricultural products. Hay production accounted for 9 per cent ($50 million) of the region’s value of production, with sales of hay to nearby dairying regions and international exports increasing in recent years. Grain legumes (lentils, field peas and beans) and oilseeds contributed 8 per cent and 5 per cent of the value of production in 2006-07, respectively. The contribution of grain legumes was low in 2006-07 compared with other years, as these crops often account for around 15 per cent of the region’s value of production. Cattle and calves accounted for 7 per cent of the gross value of production.

Number and type of farms

Australian Bureau of Statistics data indicate that in 2006-07 there were 2795 farms in the Wimmera region with an estimated value of agricultural operations of more than $5000 (table 1).

Farms are classified in table 1 according to the activities which generate most of their value of production. Within the Wimmera region in 2006-07, slightly more than 40 per cent of farms were mainly dependent on grain production, compared with 7 per cent for the whole of Victoria. Mixed livestock-crops farms accounted for 27 per cent and sheep farms for a further 20 per cent of farms in the Wimmera region. Overall, more than one-quarter of Victorian grain farms, mixed livestock-crops farms and sheep farms were located in the Wimmera region in 2006-07.

1 Number of farms, Wimmera region, by industry classification a, 2006-07
	Wimmera		Victoria
	no.	%	no.	%
Wheat and other crops	1 156	41.4	2 513	7.4
Mixed livestock-crops	760	27.2	2 567	7.6
Sheep	566	20.2	3 906	11.5
Beef	89	3.2	10 049	29.6
Other crops	57	2	853	2.5
Sheep-beef	43	1.5	1 943	5.7
Grapes	11	0.4	1 972	5.8
Vegetables	2	0.1	902	2.7
Other	111	4	9 239	27.2
All agricultural industries	2 795	100	33 944	100
a Where the estimated value of agricultural operations is more than $5000. Source: Australian Bureau of Statistics.

Medium sized farms, which have a value of agricultural operations between $50 000 and $350 000, accounted for more than 50 per cent of farms in the Wimmera region (figure b). Around 27 per cent of farms had a value of agricultural operations less than $50 000. Only slightly more than 5 per cent of farms in the region had more than $500 000 worth of agricultural operations in 2006-07.

Employment

The 2006 Census data show that around 22 000 people aged 15 years and over were employed in the Wimmera region. The agriculture, forestry and fishing industry employed the largest number of people, with around 20 per cent (more than 4000 people) of the total labour force (figure c). The health sector accounted for a further 13 per cent (2900 people) and the retail trade industry accounted for around 11 per cent (2400 people) of the total employment in Wimmera in 2006.

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 Wimmera region. Financial performance is analysed for the main industries operating in the Wimmera region.

Broadacre farm performance

Australian broadacre farm financial performance is projected to improve in 2008-09, building on the improvement recorded in 2007-08.

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

Average farm cash income is projected to increase from $62 300 a farm in 2007-08 to $80 000 in 2008-09 (table 2) because of increased grain production, strong livestock prices and reductions in fodder prices and interest rates. However, 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 maintained high fodder purchases. Prices for grains, wool and beef cattle were also lower, but prices for sheep and lambs remained historically high. With dry conditions continuing throughout most of 2008-09, purchase of cattle for herd rebuilding has been reduced and, combined 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.

2 Financial performance, Australia and Victoria, broadacre industry average per farm
		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)	6 970
Wheat area sown	ha	90	120	(7)	120	190	230	(5)	250
Wheat yield	t/ha	0.7	1.2	(7)	0.9	0.9	1	(4)	1.6
Barley area sown	ha	60	70	(8)	80	70	90	(5)	100
Barley yield	t/ha	0.6	1.8	(7)	1.3	0.9	1.5	(5)	1.7
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)	5 420	6 320	6 660	(4)	6 230
Receipts
Total crop receipts	$	57 090	122 900	(8)	106 000	102 920	166 710	(5)	195 900
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 sales	$	21 040	33 300	(13)	26 000	28 280	37 300	(4)	30 000
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
Sheep and lamb purchases	$	7 740	9 300	(15)	7 000	6 840	8 100	(9)	7 000
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
Sprays	$	10 280	14 100	(7)	15 000	16 380	23 400	(4)	26 000
Interest payments	$	17 980	25 200	(10)	18 000	34 430	43 900	(5)	33 000
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 capital, 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.

Wheat and other crops farm performance

The wheat and other crops industry represents specialised grain producers, which are farms with a majority of their income derived from sales of grains, oilseeds and grain legumes. Farm cash income for this industry rebounded strongly in 2007-08 both nationally and for Victoria because of a large increase in cash receipts (figure e) and despite increases in expenditure on the key crop inputs of fuel, chemicals and fertiliser. Total crop receipts in 2007-08 were estimated to increase by more than 50 per cent on average. This increase is largely attributed to record grain prices and improved crop production in some regions.

In 2008-09, average farm cash income is projected to remain similar to that recorded in 2007-08 at the national level, with increased grain production in some regions offset by an increase in total farm cash costs.

However, farm cash income for Victorian wheat and other crops farms is projected to decline sharply in 2008-09 to around that recorded in the severe drought year of 2006-07. Drier seasonal conditions in 2008-09 reduced grain yields, grain prices received were lower and cash costs remained relatively high.

Average farm cash incomes for Victorian wheat and other crops farms have generally been below the national average for most of the past 30 years. This is largely because of the smaller average size of Victorian wheat and other crops farms.

Mixed livestock-crops farm performance

The mixed livestock-crops industry in Victoria covers farms engaged in growing grains, oilseeds and grain legumes, combined with the production of sheep.

Overall, 2007-08 was a good year for Victorian mixed livestock-crops farms in terms of financial performance, as farms recovered strongly from the low farm cash incomes of 2006-07 (figure f). Average farm cash income for Victorian mixed livestock-crops farms exceeded the national average. With improved seasonal conditions, the area planted to grains increased more in Victoria than in other states and, combined with improved crop yields in Victoria and high grain prices, led to an increase in grain receipts. Receipts from sheep, lambs and wool also improved as a result of increased lamb turn-off and higher sheep and wool prices.

In 2008-09, a small reduction in average farm cash income is projected for mixed livestock-crops farms in Victoria. Drier seasonal conditions in 2008-09 reduced grain yields, grain prices received were lower, and cash costs increased as fuel and chemical expenditure increased. However, receipts from sheep, lambs and beef cattle remained relatively high and offered some support to farm cash income.

Nationally, average farm cash income for mixed livestock-crops industry farms is projected to rise substantially in 2008-09. This is mainly because of increased crop production in northern New South Wales, Queensland and Western Australia, together with strong sheep, lamb and beef cattle prices.

Prior to 1999-2000, average farm cash income for Victorian mixed livestock-crop farms was generally lower than the national level. However, from 1999-2000 onwards, the Victorian average has mostly exceeded the national average. This has partly been because of the relatively greater shift to lamb production on those Victorian farms over the past 10 years driven by stronger sheep meat prices.

Sheep farm performance

The sheep industry includes those farms which derive the majority of their income from sheep and wool.
Higher wool prices combined with increased turn-off of sheep and lambs resulted in an increase in average farm cash income for Australian sheep industry farms in 2007-08. This increase occurred despite total cash costs increasing by around 5 per cent, on average, mainly because of higher interest rates.

In 2008-09, average farm cash income for Australian sheep farms is projected to improve further, despite a fall in wool receipts resulting from lower wool prices and reduced wool production. Lower wool receipts are projected to be more than offset by increases in average receipts from sheep, lambs and crops. Additionally, total cash costs are projected to fall by around 6 per cent, mainly because of lower interest rates, combined with a reduction in fodder expenditure. Farm cash income is projected to increase to average $48 000 a farm.

Sheep industry farms in Victoria had a higher average farm cash income than Australian sheep farms in 2007-08. This partly reflects a greater reliance on lamb production by Victorian sheep farms in recent years.

In 2008-09 Victorian sheep farm cash incomes are projected to fall, while nationally sheep farm cash income is expected to increase further. Sheep farms in Victoria are projected to maintain a similar level of total cash costs as in 2007-08, with rising fodder expenditure being offset by lower interest costs. Cash receipts are estimated to have been reduced by lower lamb and sheep turn-off, combined with lower wool prices and reduced wool production.

Broadacre farms – Wimmera region

In this section, the Wimmera region is extended to include some areas further to the east (map 2) so that a better representation of agricultural activities in the region is covered in the analysis.

Average farm cash incomes for Wimmera broadacre farms have been above the Victorian average for most of the past 30 years (figure h). Substantial variability in farm cash income for the region is largely a consequence of the high proportion of crop growers whose income is particularly sensitive to seasonal conditions and fluctuations in grain prices. The peak years in farm cash income shown in figure h were mainly years in which seasonal conditions were generally favourable and crop yields higher than their longer term average.

The longer term trend in this region has been to increase the area planted to grain crops each year. However, in contrast to most regions, the increase in crop area has occurred while sheep numbers were largely maintained. Over the past 20 years, receipts from sheep and lambs have increased significantly, more than offsetting lower receipts from wool.

In 2007-08, improved seasonal conditions led to an increase in the area planted to grains, and with an improvement in grain yields, production of grains increased. Higher production together with favourable grain prices resulted in Wimmera producers recording a 30 per cent rise in crop receipts. Receipts from livestock sales fell because of reduced turn-off, but higher wool prices increased wool receipts in 2007-08 (table 3). Despite a 45 per cent increase in total cash costs, farm cash income increased to an average of $130 600 a farm in 2007-08, a substantial increase from an estimated farm cash income of $500 a farm in 2006-07.

In 2008-09, total cash receipts for Wimmera broadacre farms are projected to fall because of reduced grain yields, lower prices received for grains and lower wool prices. Receipts from sheep and lambs increased on the back of strong sheep and lamb prices and increased turn-off of sheep. Total cash costs remained high, similar to that in 2007-08, resulting in overall farm cash income for Wimmera broadacre farms being reduced to a projected average of $70 000 a farm, around 20 per cent below the average for the previous 10 years, in real terms.

Average farm business debt has increased for Wimmera farms, particularly in 2006-07, when many farms recorded negative farm cash incomes. Farm debt remained historically high relative to farm receipts in 2007-08. Increases in land values in recent years have given support to farm equity ratios. At 30 June 2008, the average farm equity ratio for Wimmera broadacre farms was 86 per cent, slightly below the national average (table 3).

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 in this paper 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 that had been sown. Wheat production in Victoria is forecast to be 2.6 million tonnes in 2009-10 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, 3 per cent lower than the previous year.

3 Financial performance, Wimmera region, broadacre industry average per farm
		Wimmera region
		2006-07	2007-08 p		2008-09 s
Physical
Area of land operated at 30 June	ha	1 020	970	(9)	1 030
Wheat area sown	ha	160	170	(14)	190
Wheat yield	t/ha	0.6	1.7	(9)	1
Barley area sown	ha	180	150	(12)	180
Barley yield	t/ha	0.5	2.2	(7)	1.6
Sheep numbers at 30 June	no.	1 220	1 350	(14)	1 330
Wool production	kg	5 510	6 630	(14)	5 840
Receipts
Wheat	$	41 810	96 600	(13)	80 000
Barley	$	19 870	95 500	(14)	58 000
Grain legumes	$	15 640	33 000	(20)	10 000
Oilseeds	$	1 450	14 000	(33)	16 000
Other crops	$	15 410	39 800	(23)	55 000
Sheep and lamb sales	$	51 060	49 700	(17)	61 000
Wool sales	$	19 930	33 700	(17)	27 000
Beef cattle sales	$	9 850	9 400	(48)	9 000
Total cash receipts	$	198 150	418 000	(8)	356 000
Costs
Beef cattle purchases	$	970	1 200	(60)	2 000
Sheep and lamb purchases	$	10 970	14 000	(23)	12 000
Fodder	$	11 710	7 100	(49)	8 000
Fertiliser	$	19 050	40 700	(10)	38 000
Fuel, oil and lubricants	$	18 750	29 100	(10)	29 000
Repairs and maintenance	$	15 480	22 600	(10)	23 000
Sprays	$	20 200	33 100	(10)	35 000
Interest payments	$	25 330	29 300	(13)	23 000
Total cash costs	$	197 650	287 400	(8)	286 000
Financial performance
Farm cash income	$	490	130 600	(15)	70 000
Farms with negative farm cash income	%	57	19	(34)	40
Farm business profit	$	–115 500	62 600	(32)	–24 000
Farms with negative farm business profit	%	99	47	(17)	77
Rate of return e
– excluding capital appreciation	%	–3.5	4	(16)	0.5
– including capital appreciation	%	–0.8	8.1	(13)	na
Farm capital, debt and equity
Farm capital at 30 June a	$	2 280 660	2 777 700	(7)	na
Farm debt at 30 June bc	$	351 370	377 200	(14)	na
Equity ratio at 30 June bd	%	84	86	(2)	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.

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, with the decline expected to continue to the end of 2008-09 given the reduction in lamb production. Lamb exports in 2008-09 are estimated to total 151 000 tonnes, which is 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 per cent 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 by 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 2009 in the United States and European Union 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 in 2009-10. 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 is 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.

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.