The Full Report Is Available From

16 August 2012

The full report is available from www.daff.gov.au/abares

Summary of key issues

· Colder than normal temperatures have reportedly delayed the growth and harvest of vegetables in Queensland.

· Most climate models indicate that continued warming of the Tropical Pacific Ocean may exceed El Niño thresholds by the end of September 2012. This may lead to drier conditions in eastern Australia and warm daytime temperatures across southern Australia during spring (Bureau of Meteorology ENSO ‘Wrap-up’, 15 August 2012).

· Water storage levels in the Murray–Darling Basin increased by 69gigalitres this week and are at 95 per cent of total capacity.

· High reliability water allocations increased this week in the Victorian Murray, Goulburn, Loddon and Broken valley systems.

· As of mid-August, nearly half of the mainland United States (excl. Alaska) was classified as being in severe to exceptional drought by the United States National Drought Mitigation Centre. The dry conditions have had an adverse effect on US summer crops, in particular corn and soybeans, putting upward pressure on world grains prices (see the section Grains and oilseeds – effects of US drought for details).

· World grain prices have risen significantly over the past few months, with the world wheat indicator price (US no. 2 hard red winter, free on board Gulf ports) averaging around US$362 a tonne in the week ending 14 August 2012. This compares with a recent high of US$381 a tonne on 20 July 2012 and US$260 a tonne in mid-May.

· The world coarse grains indicator price (US no. 2 yellow corn, free on board Gulf ports) averaged around US$328 a tonne in the week ending 15 August 2012, compared with a recent high of US$358 a tonne on 20 July 2012 and US$274 a tonne in mid-May.

· The world soybean indicator price (US soybeans, cif Rotterdam) averaged around US$667 a tonne in the week ending 9 August 2012, compared with a recent high of US$692 a tonne in the week ending 26July2012 and US$569 a tonne in mid-May.

· The world cotton indicator price (the Cotlook ‘A’ index) averaged US83.9 cents a pound in the week ending 15 August 2012, largely unchanged from the previous week.

· The world sugar indicator price (Intercontinental Exchange, nearby futures, no. 11contract) averaged US20.5 cents a pound in the week ending 15 August 2012, around 5 per cent lower than in the previous week.

· The Queensland young cattle indicator price (330-400 kg live weight C3) fell by around 10 per cent to 349 cents a kilogram in the week ending 10 August 2012.

1. Climate

1.1. Notable events

· Colder than normal temperatures have reportedly delayed the growth and harvest of vegetables in Queensland. The reduced supply may drive up the price of some winter vegetables over the coming weeks.

· Pulse Australia is advising lupin growers in Western Australia to apply manganese to crops before they set seed after one of driest Julies on record. Significant soil moisture deficits can limit the uptake of manganese from the soil, leading to manganese deficiency and poor establishment and growth of lupin seedlings next season.

· Up to 10 millimetres of rain is forecast for the northern cropping zone of South Australia in the coming week. Crops in these areas will be heavily reliant on rainfall over the coming weeks to sustain winter growth.

· Climate indicators such as the Southern Oscillation Index, trade winds and temperatures of the Pacific Ocean are showing a trend consistent with the development of an El Niño event. Most climate models indicate that continued warming of the Tropical Pacific Ocean may exceed El Niño thresholds by the end of September 2012. This may lead to drier conditions in eastern Australia and warm daytime temperatures across southern Australia during spring. No climate models predict a return to La Niña (Bureau of Meteorology ENSO ‘Wrap-up’ 15 August 2012).

1.2. Rainfall this week

For the week ending 15 August 2012, light to moderate rainfall was recorded across southern Australia and areas on the south-east coast, with minimal rainfall received elsewhere. The highest measured rainfall total for the week was 120millimetres at Comboyne on the NSW central coast. For further information, go to www.bom.gov.au/climate/current/weeklyrain.shtml.

Rainfall for the week ending 15 August 2012

1.3. Temperature anomalies this week

Spatial temperature analyses are based on historical weekly temperature data provided by the Bureau of Meteorology. These temperature anomaly maps show the departure of the maximum and minimum from the long-term average. Temperature anomalies are calculated using high resolution gridded datasets from 1911onwards. For further information on temperature anomalies, go to www.bom.gov.au/jsp/awap/.

Maximum temperature anomalies for the week ending 14 August 2012

Minimum temperature anomalies for the week ending 14 August 2012

1.4. Rainfall outlook

The rainfall forecast below is produced from computer models. As it contains no input from weather forecasters, it is important to also check local forecasts and warnings provided by the Bureau of Meteorology.

Total forecast rainfall for the period 16 to 23 August 2012

2. Water

2.1. Water availability

· Water storage levels in the Murray–Darling Basin (MDB) increased by 69gigalitres(GL) this week and are at 95 per cent of total capacity. This is 9 percentage points, or 2067 GL, more than this time last year.

Water storages in the Murray–Darling Basin (NSW, Victoria and Queensland)

Information on irrigation water available in the Murray–Darling Basin from 1 January 2001 to 16August2012 is shown above. The top horizontal (red) line indicates the storage level at the similar time last year. The bottom horizontal (orange) line indicates the amount of ‘dead’ or unusable storage.

2.2. Water allocations

The current water allocations for the 2012–13 water trading season for licence holders in New South Wales, Victoria and South Australia water systems are summarised in the following table.

Allocations at 2 August 2012 (%) / Allocations at 16 August 2012 (%)
NSW Murray Valley
High security / 100 / 100
General security / 100* / 100*
NSW Murrumbidgee Valley
High security / 95 / 95
General security / 64* / 64*
NSW Lower Darling
High security / 100 / 100
General security / 100* / 100*
NSW Macquarie Valley
High security / 100 / 100
General security / 28* / 28*
NSW Hunter Valley
High security / 100 / 100
General security / 100 / 100
NSW Lachlan Valley
High security / 100 / 100
General security / 0* / 0*
NSW Lower Namoi
High security / 100 / 100
General security / 0* / 0*
NSW Upper Namoi
High security / 100 / 100
General security / 100* / 100*
NSW Gwydir Valley
High security / 100 / 100
General security / 0* / 0*
NSW Border Rivers
High security / 100 / 100
General security / 100 / 100
NSW Peel Valley
High security / 100 / 100
General security / 78* / 78*
Victoria Murray Valley
High reliability / 41 / 52
Low reliability / 0 / 0
Victoria Goulburn
High reliability / 88 / 100
Low reliability / 0 / 0
Allocations at 2 August 2012 (%) / Allocations at 16 August 2012 (%)
Victoria Campaspe
High reliability / 100 / 100
Low reliability / 18 / 25
Victoria Loddon
High reliability / 88 / 100
Low reliability / 0 / 0
Victoria Bullarook
High reliability / 100 / 100
Low reliability / 100 / 100
Victoria Broken
High reliability / 26 / 36
Low Reliability / 0 / 0
South Australia Murray Valley
High security / 100 / 100

*Carryover water may also be available.

3. Grains and oilseeds – effects of US drought

3.1. The US drought

· As of mid-August, nearly half of the mainland United States (excl. Alaska) was classified as in severe to exceptional drought by the United States National Drought Mitigation Centre (see map below).

Drought rating in mainland United States (excl. Alaska)

· Over the next few months to October, drought is expected to continue across most of the central US grain producing states, and temperatures are likely to be above average according to the United States National Drought Mitigation Centre.

3.2. The effects on US crop production

· The drought has had an adverse effect on US summer crops, in particular corn and soybeans. As at 13August, the United State Department of Agriculture (USDA) rated the condition of around half the US corn crop as poor or very poor and a further 26 per cent as fair.

· In the latest edition of World Agricultural Supply and Demand Estimates, released by the USDA on 10August, the estimate for US corn production in 2012-13 was revised down to around 274 milliontonnes. This represents a 13 per cent fall from last season and if realised, would be the lowest UScorn production since 2006-07.

· The estimate for soybean production in 2012-13 was revised down to around 73 million tonnes, which represents a 12 per cent fall from the previous year and if realised, would be the lowest US soybean production since 2007-08.

· At this stage, US wheat production is not expected to be significantly affected. Most US wheat is grown in the USwinter and spring. For the 2012-13 season, US wheat production was forecast to be around 62milliontonnes, which represents a 13 per cent rise from the previous year and if realised, would be the highest USwheat production since 2008-09.

3.3. World grain prices

· World grain prices have risen significantly over the past few months in response to the outlook for lower US grains production (especially corn).

· The world coarse grains indicator price (US no. 2 yellow corn, free on board Gulf ports) averaged around US$328 a tonne in the week ending 15 August 2012. This compares with a recent high of US$358 a tonne on 20 July 2012 and US$274 a tonne in mid-May.

· The world wheat indicator price (US no. 2 hard red winter, free on board Gulf ports) averaged around US$362 a tonne in the week ending 14 August 2012, compared with a recent high of US$381 a tonne on 20 July 2012 and US$260 a tonne in mid-May. The recent rise in world wheat prices reflects expected higher feed demand from the livestock sector due to lower US corn production.

3.4. World export supplies of grains

· The United States is typically the world’s largest exporter of corn, wheat and soybeans. The dry conditions in the United States are expected to reduce the global availability of exportable grain in 2012–13, especially corn.

· Australia is also a major grain exporter. In mid-June, ABARES forecast winter crop production to be around 38.5million tonnes in 2012–13. If this is achieved, it will be around 24 per cent higher than the average of 31.1 million tonnes over the 5 years ending 2010–11. ABARES will release updated winter crop forecasts in its next issue of the Australian Crop Report on 11 September 2012.

· Australian grain exports are expected to remain high in 2012-13. Stocks of grain in Australia were boosted by consecutive large crops in 2010–11 and 2011–12. For example, Australian stocks of wheat held by bulk handlers at the beginning of July 2012 were more than double the stock levels at the same time in 2009 (see figure below).

Wheat stocks held by bulk handlers, beginning of month

4. Other Commodities

4.1. Production and commodities

· Wholesale fruit prices were generally lower or unchanged in the week ending 11 August 2012. The prices of rockmelon and avocado (hass) decreased this week after increasing sharply over recent weeks.

· Wholesale vegetable prices were generally higher in the week ending 11 August 2012 with the prices of cauliflower, tomato (field gourmet), broccoli, iceberg lettuce and pumpkin (grey bulk) rising. Tomato wholesale prices have risen in recent weeks due to a reduction in supply. The reduced supply is due to a poor harvest in Victoria and a delayed season in Queensland, the largest producer of fresh tomatoes, as a result of colder than normal temperatures.

· The world cotton indicator price (the Cotlook ‘A’ index) averaged US83.9 cents a pound in the week ending 15 August 2012, largely unchanged from the previous week.

· The world sugar indicator price (Intercontinental Exchange, nearby futures, no. 11 contract) averaged US20.5 cents a pound in the week ending 15 August 2012, around 5 per cent lower than in the previous week.

· According to the Chinese Bureau of Statistics, China's sugar production from January to July 2012 period was 10.84 million tonnes, 16.4 per cent higher than for the same period in 2011.

· The Queensland young cattle indicator price (330-400 kg live weight C3) fell by around 10 per cent to 349cents a kilogram in the week ending 10 August 2012.

· Saleyard lamb prices were mixed in the week ending 10 August 2012. The lamb indicator price (18-22kg fat score 2-4) was largely unchanged in Victoria, 11 per cent lower in Western Australia, 2 per cent lower in New South Wales but 2 per cent higher in South Australia. Total saleyard throughput was 12 per cent lower than the previous week, mainly reflecting lower throughput in Victoria and New South Wales.

· The Indian Meteorological Department has formally declared the monsoon season to be a drought. Rainfall over the June–September season is expected to be less than 90 per cent of the long-term average.

4.2. Recent movements in fruit and vegetable prices

Weekly wholesale prices for selected fruit, Melbourne market