Dry conditions in WA over spring and summer will add to the challenges facing wheat and sheep farmers.
The Bureau of Meteorology (BOM) recently released the rainfall deficiencies map for the nation to the end of September, and it makes grim viewing for Western Australian producers.
Large tracts of the southern half of the state are experiencing severe rainfall deficiencies.
To add insult to injury, the bureau predicts the chance of exceeding median rainfall levels throughout October for the western seaboard of WA is expected to be below 30 per cent.
Meanwhile, the picture is much rosier across on the east coast.
After suffering through sustained drought during the 2018-19 season, which affected northern NSW and southern Queensland harshly, the rainfall deficiencies have nearly disappeared.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) is expecting the WA wheat crop to come in at 8.9 million tonnes, while the Grain Industry Association of WA has it pegged at 8.45mt.
However, the move to a La Niña weather pattern often results in WA receiving average to slightly poorer rainfall outcomes, as the BOM outlook indicates.
With the deterioration in seasonal conditions expected in the west as we approach harvest, there could be further volumes shaved off the crop outcome.
Anecdotal reports suggest the current deficiencies in WA could lead to a harvest outcome this year closer to the long-term average trend.
The 20-year average wheat harvest for WA sits at 7.9mt.
On the east coast, ABARES anticipates the crop to come in nearer the 20mt mark, compared with a 20-year average east coast crop of 14mt.
Additionally, improved seasonal conditions along the east coast have boosted restocking activity for sheep and cattle.
Indeed, the demand for sheep and lambs in NSW this season has resulted in record numbers transported from the west, with more than 1 million head reported to have been sent east so far this year.
The current strong demand for sheep and lambs in NSW is being fuelled by a strong incentive to restock, as sheep turnoff was highest in NSW during the recent drought.
Meat and Livestock Australia reports that, while the national flock dropped 7 per cent during the drought, the NSW flock reduced by 11 per cent.
Some heavily drought-affected regions within that state experienced 25-35 per cent declines in flock numbers.
The prospect of a solid harvest on the east coast this season could mean many mixed farmers will have surplus cash to invest in their livestock rebuilding programs post-harvest.
Certainly, during the very favourable 2010-11 season, when the east coast crop came in at 22.4mt, there was an increase in restocking activity, which included large volumes of sheep and lambs transported to the east from WA.
In 2010, the WA wheat crop came in at a miserly 5mt, so many mixed farmers in the west were grateful there was an avenue to destock and get some additional income in by supplying sheep and lambs across to their east coast cousins.
This year, we may see a similar phenomenon as we head beyond the harvest. Granted, record numbers of sheep and lambs have already crossed the Nullarbor.
However, these flows may continue into early 2021, particularly if the La Niña effect continues and WA is dry through spring and summer.
Recent discussions with mixed farmers in WA indicate they are seriously considering exiting the sheep sector entirely to shift their enterprise mix fully toward cropping.
Uncertainty around the long-term viability of the live sheep trade in WA is an ongoing concern for some WA sheep producers.
The annual sheep turnoff in WA is heavily dependent upon a vibrant live export sector, so disruptions to the supply chain such as the three-month Northern Hemisphere summer moratorium make it increasingly difficult for farmers to manage the flock effectively, particularly during the dry periods.
With the prospect of many more sheep and lambs exiting WA for the east coast into next season, there are questions as to how long the WA flock can remain at a viable level to ensure the sheep industry is big enough to support the size of the current supply chain.
An ever-reducing WA flock will have dire implications for meatworks, shearers, livestock agents, livestock transport operators and many others employed in regional and rural areas who draw an income from the sheep industry.
Matt Dalgleish is manager of commodity market insights at Thomas Elder Markets (TEM)
