Saturday, December 15, 2007

Australia Loses Half Its Wheat Crop To Drought

How would Australians cope if such a staple food source as bread rose to $8 or $10 a loaf?

I'm not talking a handmade rye sourdough, but your basic white or wholemeal loaf of bread. With warnings of further inflation to come, and the stunning news that Australia's projected wheat crops for 2007 are down by almost 50%, a $10 loaf of bread might not be such an unthinkable reality in a few years time. If the drought continues, and there's not many climatologists or scientists out there claiming its going to end any time soon. In fact, it's more than likely to get worse.

The problem with wheat shortages, or vastly more expensive wheat, is how those costs soak into the price of nearly everything in your fridge, from milk, yogurt and ice cream, to steak and eggs.

More here :

Wheat is a hardy plant. But without essential follow-up rains the crops were devastated. The country's official forecaster has now slashed the year's wheat production from the 22.5 million tonnes projected in June to 12.7 million tonnes.

In a further blow to farmers, the optimistic start to the season meant many sold their projected wheat crops on the futures market for the security of a fixed price.

When the crops failed, they were left without the means to pay back the advance. To make matters worse, they have to repay it based on the current wheat price, which has skyrocketed given global shortages.

"There are blokes that owe a million bucks and they've got no crops," Duncan Lander said.

The wheat price advance deal discussed above is stunning, and clearly someone is making huge profits off it, but it's not the Australian farmers.

Here's how it works. Say you're a wheat farmer who did it tough last year, and the year before, after years of drought and huge financial losses. Your family's under pressure, your mates are taking their own lives and your local town is breaking apart as more and more people walk off their farms, sell up and head to the cities, or to the mines, to find work.

Earlier this year, you get some rain, and there's talk that there will be more rain to come. Probably.

You take the gamble. You'll give your wheat farm one more season. You decide to sell the wheat crop you're about to put in for, say, $260 a tonne. You score an advance on that crop, at $260 a tonne. You'll owe the bank, or an international wheat broker, a decent amount when you harvest that crop, with all the interest, but you figure you'll make some money. You might not get too far head of the debts from the previous three or five years worth of losses, but it will be a step back onto the road towards something close to prosperity.

You get the advance, you put the crop in, the rain keeps falling, your fields start to turn green. There's money coming in from the government as well, to help people cope with 'The Rural Crisis', so you start thinking about buying that new farming equipment you should have brought a few years back.When you drive to the bank to talk about about a loan for new machinery, the roads are flooded. You laugh.

But then, a few weeks after you walked through those green fields of young wheat, the rain stops falling. The heat hits. In ten days your crop is dead.

But there is still more pain to come, because the wheat crop failures, and shortages, are now worldwide. So the price per tonne is rising, as the second half of 2007 unfolds. $280 a tonne. $320 a tonne. $360 a tonne. $400 a tonne.

You don't have a crop, so you can't cash in on a 12 month 40% increase in the price of wheat anyway. If you'd been flush, or flush enough, and not needed to borrow so big, and if you'd put that crop in and if the rains had kept falling...if, if, if...

But you don't have a crop and now have to pay out that loan. That $260 a tonne advance for a crop now worth $400 a tonne. You know farmers in other states who put in crops and got the rain they needed. But like you, they pre-sold their wheat crops for $260 a tonne. They harvested their crop, they sold it, but they didn't get rich. They barely broke even. But the international broker who lent them the money made $140 a tonne profit in just a few months.


Between 50% and 60% of all the land in Australia that was farmed for food - for wheat, for sugar, for fruit, for vegetables - in the late 1990s is now ravaged by drought. Wheat crops died, and now fruit trees are being bulldozed because no rain means those farmers can't afford to pay the increased prices for water access.

It's mind-boggling to even think about, let alone live. Which is why so many people in Australia's cities have such a hard time getting their heads around what is going on 'out there.' There are more farmers blowing their brains out in their sheds today than there are leaning on a fence, tilting back their hat and admiring the sunset.

What happens to a country when half of its primary food production capability is lost?

What happens when it loses 70% or 80%?

The drought continues...

Drought Causing Long Term Price Rises For Food

January 2007 : Monster Floods Bring Smiles To Drought Devastated Country Towns