15/06/2011 - 08:57

Analysis: the boom heads for the bush

15/06/2011 - 08:57

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Bad news for the meat and wine industries is masking a minor miracle in the Wheatbelt where high commodity prices are breathing new life into near-dead towns.

Bad news for the meat and wine industries is masking a minor miracle in the Wheatbelt where high commodity prices are breathing new life into near-dead towns.

Over the past few weeks, as live cattle exports were banned and grape growers contemplated pulling vines, wheat and sheep farmers from Geraldton to Esperance were celebrating.

Rain helped the mood, but the real driver came from overseas markets where wool prices hit a 23-year high, and wheat prices followed.

No-one in the bush is getting too excited. They're seen false-starts before during a dreadful 20 years of declining income and a mass exodus from once thriving communities.

But, this time there is optimism that the recovery will stick, not because we're doing anything smarter, more because the same forces of rising demand and falling supply which have driven mineral prices to record levels is now being felt in agricultural commodities.

For investors jaundiced by two years of boom and bust on the stock market, followed by the past 12-months of anaemic trading the promised rural recovery could be a signal to take a fresh look at regional opportunities in the property sector.

Drought and floods around the world have coincided with a significant drop in stockpiles of stored rural products such as wool, wheat and other cereal crops.

It is possible, but still in the "cross-your-fingers-and-hope-for-the-best" department, that the long promised rural recovery has started thanks to the world's seven billion people demanding more food and clothing.

Wheat is the starting point for a quick look at what's happening because it has risen by 10 per cent in the past month on U.S. markets, and is now roughly double the price of a year ago -- mimicking a boom in corn prices thanks in part to weather events in North America and Europe.

The latest report from the U.S. Department of Agriculture points to global corn reserves falling to their lowest level since 1973.

For WA farmers the world food shortage, which is adding to already tense political conditions in the Middle East and other fragile regions, has boosted the average price of wheat to around $335 a tonne, comfortably above the estimated $280/t needed to break even in drier regions.

Wool is following wheat thanks to a combination of rising demand for clothing meeting the effects of a smaller global sheep flock, and reduced cotton production in the Middle East and the U.S.

Over the past two years the closely-followed eastern market indicator on the Australian Wool Exchange has almost doubled from around $7.60 per clean kilogram to around $14.20/kg.

Graziers will be quick to point out that the recent rise merely returns wool to a reasonable price after decades of depressed market conditions that followed a failed attempt to peg the Australian wool price in the face of falling demand - a scheme that led to the creation of an unsold wool mountain.

The most dramatic of the after-shocks which followed the collapse of the failed price fixing scheme has been a fall in the annual Australian wool clip from 1.1 billion kilograms in 1990 to 350 million kilograms last year.

Australian wool produces are not alone. Flock numbers have crashed in all wool producing countries to around 40 per cent the size of 20 years ago - a crash which is now meeting rising demand for premium quality cloth in fast-growing Asian economies where a fine-wool suit is a sign of success.

Signs of the transformation underway in the WA Wheatbelt are there for anyone to see.

- Equipments sales are rising.

- Shops are well stocked.

- Wheat planting, now largely completed, is close to a record.

- Sheep flocks are being switched from meat producing varieties to the classic wool-yielding merino, and

- There have been reports (unconfirmed) of some farmers smiling!

Are we back to the good old days? Not yet, but the signs are there.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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