Crop production hit by unfavourable seasonal conditions

In its Australia crop report – February 2020, ABARES says production prospects for summer crops in Queensland and northern New South Wales remain well below average.

Peter Gooday, acting executive director of ABARES, said that this is an extremely trying time for many crop growers, especially those in New South Wales and Queensland.

“Summer crop prospects were adversely affected by unfavourable seasonal conditions in December that further depleted soil moisture levels to well below average in most summer cropping regions and to record lows in some others”, Gooday said.

“With the planting of summer crops in Queensland and northern New South Wales now largely complete, we expect planted area and production to be lower than our forecasts of December 2019.

“This largely reflects seasonal conditions in December that were more unfavourable than expected.

“Rainfall in late January and in February was largely too late to plant more grain sorghum in southern Queensland and northern New South Wales.

“The Bureau of Meteorology’s latest three-month rainfall outlook indicates that for most summer cropping regions in Queensland and northern New South Wales rainfall is more likely to be below average than above average from March to May.

“We are likely to see a 66 per cent decrease in summer crop production down to 878,000 tonnes.

“Cotton production is forecast to fall by 72 per cent to around 135,000 tonnes of lint and 191,000 tonnes of seed.

“Grain sorghum production is expected to be down by 77 per cent to around 292,000 tonnes.

“Rice production will remain low at around 54,000 tonnes due to low water allocations and high water prices.

“ABARES’ winter crop production estimate for 2019-20 will remain largely unchanged from our forecast of December 2019 at around 29 million tonnes.

“Higher than expected barley and canola production is estimated to have largely offset lower than expected wheat production.”

Dry weather in Australia significantly impacting crops

Australia has experienced one of the driest autumns since records began, more than 100 years ago, leading to poor crop growth.

It’s not unusual to experience dry conditions in early autumn, with a normal winter crop possible if a rain break arrives by mid-June.

But, continued dry conditions in July are contributing to one of the driest seasons on record for many crop regions.

Nufarm is concerned that the Australian crop protection market is down substantially as a result.

READ: Dry weather ahead cries out for ‘aggressive’ NSW dairy management

The extended dry weather conditions have impacted ANZ business, with the 2018 financial year EBIT contribution from ANZ now anticipated to be between $5million to $10m (LY$51.6m).

These seasonal conditions have also impacted the mix of products sold, with growers buying lower margin functional products over higher margin differentiated products.

The limited demand for crop protection products across Australia has led to increased competition and high inventory levels – resulting in significant margin pressure.

By the 20th of July, following feedback from Nufarm teams, it was determined that the market had reached a turning point.

It is now considered unlikely that a viable crop season will occur in many parts of the country and the expected demand for post emergent products will not eventuate.

Given poor demand in the 2018 financial year, there will be an overhand of inventory. Grower demand will depend on a return to normal summer conditions in the 2019 financial year, but the Australian Bureau of Meteorology is forecasting a dry spring.

Anticipated low levels of demand, coupled with the current over-supply, is expected to constrain sales and margin into 2019.

Despite the drought conditions, Nufarm remains confident it has retained market share in Australia, in line with the long term strategic objective.

Nufarm expects Net Working Capital for the group, at the 31st of July, to be $200m-$300m higher than last year.

This reflects the high inventories in the Australian business due to the difficult seasonal conditions and the higher receivables in the Northern Hemisphere countries resulting from the delayed seasons in those markets.