The Australian 2006-7 Drought as seen in hard-nosed economic terms.

Graph of Australian Canola trade showing the impact of the 2006 drought based on ABARE Oct 27 Drought Update forecast

The ABARE Australian crop and livestock report: Drought Update, 27th October 2006 is now available.

The summary alone is pretty grim news.

The details show canola hit worse than 2002. Clearly local oilseed demand for crushing is under pressure, speculation about impending oilseed importation is justified, and the current domestic surge in canola prices is significantly driven by this rural disaster.

Here what's happening in Winnipeg canola futures captured October 28th 2006 , a surge indeed in October. Australian spot prices a following a similar trend, at the end of October.


But a letter to the Weekly Times says all this and more in humane prose.
Letter to The Weekly Times, Melbourne, 1 Nov 2006

Canola price gap temporary.

BY WAY of some explanation to Garth Strong (WT October 11) on the current difference hetween Australian and Canadian futures prices for canola, the issue should be looked at from a supply and demand perspective.

In Australia we are seeing low domestic canola stocks and a looming shortfall from the coming canola harvest driving up the Allstralian domestic price for canola, as local crushers seek to secure supply.

As a result of drought we'll probably be a canola importing nation soon, so our market is now more closely linked to import
prices than export prices.

At the same time, Canada is seeking to market almost record stocks of canola grain which in turn has softened their export prices into the immediate future.

However, perhaps a more salient point is, how long will this erstwhile price advantage last?
The EU will continlle to be a significant net importer of canola graiin and canola oil to meet demand for biodiesel production.

In responding to this demand,the Canadians are actively exporting canola oil to the EU, but their domestic oil extraction capacity cannot be expanded over-
night to fully meet that opportunity.

However, the EU is progressing towardss approving a range of GM canola events for importation into the EU.
So irrespective of the cause of the current price divergence, it appears likely that the EU will be in in position to import C:illadian
canola grain for processing for biodiesel use, quite possibly in time to supplement next years
northern hemisphere harvest.

When that occurs, and if we have something resembling a normall season by then any price differentials between Canadian (GM) and Australian (non-GM) caookl might well be a thing of
the past.

Peter Carr,
Adelaide

Also
Canadian GM canola may be in Australia by end of year
02.nov.06
Australian Broadcasting Company
Genetically-modified (GM) canola from Canada could be imported into Australia by the end of the year.
It is one of 40 applications to import grain and oilseeds to address feed shortages.
Peter Liehne from the Australian Quarantine Service has told the Senate Estimates Agriculture Committee that if the canola application succeeds, the oilseed will have to be crushed near the port of entry.
He says the applicant plans to make the remaining meal into livestock feed.
"The issue of the presence of GM in the food supply is an issue for Food Standards Australia New Zealand (FSANZ) and the GM canola varieties that have been imported have all been approved for use in the food supply by FSANZ and the Ministerial Council," he said.

The basic economic advantages enjoyed by Canadian canola gowers are explained here.

A November news item fills in the gloomy picture

Feedlot industry feels squeeze: sorghum prices up 80pc on last year's
Australia
Tuesday, 7 November 2006

This Farmonline item reveals that feed grain prices have reached levels not seen since early 2003, Australian Lot Feeders’ Association president, Malcolm Foster, said today.

“Sorghum prices are up over nearly 80pc on last year's, so there are pressures on all producers feeding livestock, particularly for specialist lot feeders," he said.

"Strong international grain prices and severe local drought-induced grain shortages, have seen Australian grain prices soar in the past two months.”

“I expect feedlot margins will remain very tight for most of 2007 with little relief from high grain prices until harvest late next year.

"Fortunately, there hasn’t really been a commensurate drop in cattle prices."

SOURCE: The Land, NSW'


But back to the report itself:

Overview – impact of the drought

• Most of Australia’s winter grain growing regions are clearly in the grip of serious drought. Consequences for the farm sector, especially for broadacre winter grains and grazing livestock, are likely to be severe in terms of lost production and forced sales respectively.
• Seasonal conditions have deteriorated markedly since mid-September, with little or no worthwhile rain and continued warmer temperatures, particularly in South Australia, Victoria, New South Wales, southern Queensland and parts of Western Australia. As a result, production of the major winter crops in 2006-07 will be substantially lower and cattle and sheep slaughterings higher than were forecast in ABARE’s Australian Crop Report released on 19 September, and Australian Commodities released on 25 September.
• Output of the three main winter grains, wheat, barley and canola, is now forecast to be down by over 60 per cent from last year and over a million tonnes less than during the 2002-03 drought.
• Taking into account the downward revision in crop and livestock earnings identified in this report, the gross value of farm production of these commodities in 2006-07 is forecast to be down by 35 per cent or $6.2 billion below the value in 2005-06. After allowing for the effects of inflation, the gross value of production of these commodities in 2006-07 is forecast to be 16 per cent less than in the 2002-03 drought.
• Taking into account this latest revision to farm sector forecasts and the flow-on effects on the rest of the Australian economy, the drought is estimated to reduce economic growth in Australia in 2006-07 by around 0.7 percentage points from what would otherwise have been achieved.

Update 6 Dec 2006
Newcastle Herald 5 Dec 2006
Imported GM seed hits port By INGRID BOWN

Reports that Australia's first load of genetically modified (GM) canola at the port of Newcastle.
International grains trader Cargills said it brought in the 50,000 tonnes of canola seed from Canada to make up the major shortfall caused by the drought.

The Herald says the oilseed seed will be processed at Cargill's Kooragang Island plant before it is sold for use in products including canola oil and animal feed.

Mr Green said this year's projected total crop size for the eastern states was 160,000 tonnes of seed, but about 500,000 tonnes were needed to satisfy domestic demand in those states.