Sheepish? It has never been better

10 Jan, 2018 04:00 AM
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RECORD prices, good seasons and cheap money.

In 175 years of farming in New South Wales, the McGufficke family reckons they have never had it so good.

Australian agriculture is riding high on the back of unprecedented wool prices, driven by demand from China and shifts in the global textile industry.

Wool price records have been broken multiple times this year, with the Eastern Market Indicator hitting a new high of 1765 cents a kilogram last week.

That was up from 1439c/kg in January, 2017, when the price topped a benchmark set in 2011.

Mark McGufficke, who runs four farms around Cooma in partnership with his brother Alan, said the market had been good for several years and was getting better and better.

“Everything is going our way at the moment,” Mr McGufficke said.

“We were making good money at a 1000 cents, we have had six or seven cracking seasons and money is as cheap as it is ever going to get.”

The McGuffickes have taken advantage of the soaring profits and low interest rates to buy more land and increase their flock to more than 20,000 Merino ewes and lambs.

They supplement their income from wool with cross breeding for the booming market in fat lambs.

Veteran producers up and down the east coast agree with the McGuffickes that with wool and sheep meat prices flying at the same time business has never been better.

Commonwealth Government forecaster ABARES expects farm cash income for lamb producers to reach its highest level in 20 years and industry surveys indicate most are looking to expand operations.

Australian Wool Innovation (AWI) analysis shows there has been a fundamental shift in demand for the nation’s wool built into the global textile industry over the best part of 10 years.

AWI trade consultant Scott Carmody noted consumers were exercising their discretionary spend on luxury items and that includes wool with its appeal as a natural, ecologically sustainable and biodegradable fibre.

“The wool markets are sustaining the bull run on price, and this is in tandem with a very stable production scenario,” Mr Carmody said.

“As economic conditions are forecast to continue to improve throughout the world, this should assist to enshrine these sort of price levels into on farm modelling.”

Super fine wool from Australian Merinos, previously in demand for men’s suits, has emerged as a fibre of choice in activewear produced by Adidas, Nike, New Balance and others.

The price of 17 micron Merino wool was 2556c/kg in Sydney at the end of December, up by more than 100 per cent in eight years.

China buys about 80pc of Australia’s wool clip where it is sent for early stage processing.

Half of that processed wool stays in China with the rest on-sold.

Indications are there is no stockpile in China and there has been straight-to-processing buying for some time.

Mr McGufficke, who owned Merinos when they were “worth nothing and being shot and put into the ground” after the collapse of the reserve price scheme in 1991, said the prices were having a big flow-on effect for regional economies.

He is noticing spending on fencing, watering systems, sheds and farm house rebuilding in a boost for regional small businesses and tradesmen.

Cattle Council of Australia (CCA) president Howard Smith, who is based in Central Queensland, said it was a similar story in his industry now that producers had some money in their pockets.

“It has been another good year for the cattle industry as prices have come back a bit from the highs but they are still very respectable,” Mr Smith said.

He said only a few years ago many producers were in survival mode and suffering through the lowest cattle prices in decades.

“Now they are reinvesting back into their businesses and properties either through expansion or lifting productivity through fencing or water points, genetics,” he said.

“I think that has a flow-on effect through rural towns as well.

“It is a real shot in the arm for regional Australia.”

The season break in Central Queensland and many parts of the East Coast, brought on by spring rain, has the CAA expecting a herd rebuild that will stabilise cattle prices into the new year.

“If the season keeps going the way it is on the East Coast and fills in in other parts, I’d expect re-stocker demand will hold prices up,” Mr Smith said.

“And I’ve been talking to the processors and they seem positive about demand from overseas customers.”

Meat & Livestock Australia (MLA) agrees the wet season in Queensland, home to about half of the national herd, will heavily influence price and supply in 2018.

It said Australian cattle prices appeared to have realigned themselves to the historical ratio of about a 20pc discount on the United States market in 2017.

MLA said currency movements and the increase in Australian cattle prices over the past three years had made South America a more competitive supplier to the global market.

“Up until 2015, Australia tracked relatively closely to Brazil, Uruguay, Paraguay and Argentina.

“However, steers in Australia are now tracking close to a 50pc premium to those in Brazil.

“The US remains Australia’s principle competitor but Brazil and other South American producers are supplying increasing volumes into some Asian markets, namely China,” it said.

On the domestic market, CCA is closely monitoring applications from the US, Netherlands, Japan, Vanuatu and New Zealand to import beef into Australia.

Some of those nations were previously banned because of Mad Cow Disease, or Bovine Songiform Encephalopathy (BSE) concerns.

Mr Smith said the nations with applications being assessed by the Federal government had never had been big importers to Australia prior to the BSE bans.

“We are not protectionist – we can’t afford to be because we respect that free trade is how we survive,” he said.

“But we advocate strongly that they must meet our very high standards in this country and have the equivalent traceability.”

It has been a tougher year for grain growers, who are most of the way through harvesting the winter crop which is down by 35-40pc on the record result in 2016.

Industry experts are predicting a wheat harvest of about 21 million tonnes, down from 34mt last year and compared to a 10-year average of 25mt.

ABARES expects the value of Australian farm exports to fall by 3pc to $47 billion in 2017-18, mainly because of the drop in grain production.

Wheat prices are tipped to increase but remain low, reflecting a fall in high quality supply.

Australian Crop Forecasters founder Ron Storey said wheat exports were likely to drop by up to 40pc to about 16mt with prices similar to the previous year.

Mr Storey said it has been a poor year in southern Queensland and northern NSW while the crop in Western Australia had made a big comeback.

“WA was almost written-off at the beginning of the year,” Mr Storey said

“It was a very, very good spring and they will have at least an average crop in WA so that has been a major bonus.”

Wet weather at the start of December affected the quality of the crop in south-eastern Australia, but not as badly as first feared.

“We are just starting to see now some deliveries of downgraded grain, but it is not a disaster,” Mr Storey said.

“The last time this happened was 2010-11 when it almost wiped out the East Coast.

“This time there has been a lot of rain, but it looks to have done fairly minor damage, but that is a generalised statement because for some there has been considerable impact.”

Mr Storey said there had been a swing back to livestock among farmers over the past two years based on strong wool, lamb and cattle prices.

“If you take the past 15 years, we have certainly seen a trend of what were mixed farming enterprises move completely out of livestock to purely cropping,” he said.

“The strength of lamb in particular and wool and cattle in the past two or three years is causing some people to re-think that and go where the money is.”

FarmWeekly

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