While the economic story as a whole can only be described as positive. For many, however, it will be cold comfort.
Justin Vanstone, a fourth-generation vegetable grower in Crowley Vale, an hour’s drive west of Brisbane, estimates he has already lost more than 400,000 plants, a blow to his business north of 1million of dollars. The final cost could be higher as the surviving vegetation succumbs to heavy rains followed by hot, sunny days.
“The enemy after five or six days of humid conditions is actually the sun. The plants don’t take to it very well,” says Vanstone. FRG weekend.
Its properties are in the heart of the Lockyer Valley, an important food growing region between Brisbane and Toowoomba. Nearly one in five jobs is in agriculture, and the valley’s economic output is nearly $2 billion a year.
Vanstone says the reason for Lockyer’s moist and nutrient-rich soils is the fact that it sits on a floodplain; it’s part of life. But getting an entire year’s worth of rainfall in a few days is impossible to predict.
The financial pain for farmers will likely come in three or four months, when crops destroyed or unable to be planted due to flooding will generally be ready to harvest and sell.
“The Lockyer lights up around ANZAC Day,” he says. “If you delay this for a month, for seasonal workers, you remove what could represent 20% of production. And, if like most modern farms, you have fixed costs…you could be talking about a negative profit even if things went wrong.
“And that’s before you factor in salvaging and repairing any damage to the floor and all those sorts of things that need to be done; investment expenditure”.
During our 15-minute phone call Thursday afternoon, Vanstone reports that the local creek rose 500 millimeters to cut off the nearby bridge. The conversation is interrupted when the power goes out – again.
Exceptional winter harvests
But widespread crop destruction is unlikely to prevent Australia from hitting a record year for on-farm production at around $80 billion.
“Australia has harvested what will be the most valuable winter crop ever,” Bureau of Agricultural and Resource Economics boss Jared Greenville said this week ahead of the agency’s annual conference.
ABARES expects agricultural production in 2022-23 to come in just behind this year’s figure, at $76 billion. Although it’s a twist of fate, the Battle of the Black Sea could drive that number up as prices for some commodities soar.
Russia and Ukraine account for more than 30% of global wheat exports, and since the Kremlin sent troops to Ukraine in late February, the price of wheat has risen 30% to US$12.21 (16. $60) a bushel.
The value of Australian wheat production is expected to hit a record high of $12.3 billion this year thanks to near-perfect La Niña growing conditions that were expected to moderate to around $9.5 billion next year – before prices start to rise.
Already, countries that used to buy Ukrainian wheat, such as Indonesia, are looking to Australia for supplies. Ukraine also accounts for more than 45% of global corn production, the price of which has risen 30% since Jan. 3 to $7.78 a bushel.
Soaring energy prices
But the real benefit for Australia comes from soaring energy prices. Brent Crude rose to US$114 a barrel in European and US trading on Thursday before falling back to around US$110 a barrel; that’s still up 40 percent year-to-date. West Texas Intermediate also hit around $110 a barrel before falling slightly, but is also still up 40%.
While Australia is an importer of petroleum products, energy substitutes such as coal and liquefied natural gas have followed oil skyward.
Thermal coal futures were trading around $358 a tonne on Friday, which, although down from $446 earlier in the week, was well above previous highs of $250-$300. per tonne 13 years ago.
Floating rate LNG futures in Asia are up 100% year-to-date, while European and UK floating prices are up around 120%. “These are all-time highs,” says Westpac’s capital markets strategy group Robert Rennie.
At the aggregate level, the upward movement will be good for nominal GDP and living standards, which are traditionally measured in nominal GDP per capita; but in the short term, higher prices mean a blow to household budgets.
Gas pump pain
The national average weekly retail price for unleaded gasoline rose 1.5¢ per liter to a new record high of 180.6¢ last week, according to the Australian Petroleum Institute. The average Australian household now spends $252.84 a month on fuel, according to CommSec.
This is reflected in the price of other products and services. Australia Post said this week that its fuel surcharge for April would be a record 3.1%.
Higher prices appear in inflation data from the Bureau of Statistics. Headline inflation hit 3.5% in the December quarter and RBA Governor Philip Lowe said on Tuesday it is expected to remain elevated.
“The war in Ukraine is a major new source of uncertainty. Inflation in some parts of the world has risen sharply due to sharp increases in energy prices and disruptions to supply chains at a time of high demand,” Dr Lowe said.
Compared to its global peers, Australia’s core inflation at 2.6% is subdued and in the middle of the central bank’s target range of 2-3%; although most economists expect that to change.
“[CPI] will climb higher than that due to rising oil prices as a result of global developments,” Dr Lowe said. But the RBA has indicated that it will review price spikes and wait to see how the pressures play out.
The risk for the RBA is that rising interest rates will not change energy prices, but will affect household budgets more at a time when wages are below inflation and are expected to remain so until 2023 at least.
Share prices of Australian oil and gas players have risen this week, following a rise in their main exports. Woodside was up more than 7% in Friday morning trading, while Santos was up nearly 4%. Gold producers also saw positive moves as investors shifted money into safe-haven assets.
There are plenty of upsides for the local economy, but for many, that won’t make storm clouds any easier to deal with.