Required Report - public distribution

**Date:** 3/21/2006

**GAIN Report Number:** AS6017

AS6017

**Australia**

**Grain and Feed**

**Annual**

**2006**

**Approved by:**

![](media/image1.wmf)Kathleen Wainio, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Mike Darby, Agricultural Specialist

**Report Highlights:**

Wheat production for 2006/07 is forecast at 24.0 MMT, 1.1 MMT below the
2005/06 crop. Long range ABARE projections project wheat production
increasing year-on-year to 27.7 MMT in 2010/2011. Barley production for
2006/07 is forecast at 8.9 MMT, down just under 1.0 MMT from the
previous year level. Australian sorghum production for 2007/08 is
forecast at 1.99 MMT, down slightly from the previous year. Australian
rice production for 2007/08 is forecast at 1.1 MMT, up slightly from the
previous year due to improved reserves of irrigation water.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Canberra \[AS1\]

\[AS\]

Table of Contents

[SECTION ONE: SITUATION AND OUTLOOK
3](#section-one-situation-and-outlook)

[Summary 3](#summary-1)

[SECTION TWO: STATISTICAL TABLES 4](#section-two-statistical-tables)

[SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING
8](#section-three-narrative-on-supply-and-demand-policy-marketing)

[General 8](#general)

[Weather Conditions 8](#weather-conditions)

[WHEAT 8](#wheat)

[Production 8](#production)

[Area 9](#area)

[Yield 9](#yield)

[Exports 10](#exports)

[Consumption 10](#consumption)

[Policy 10](#policy)

[AWB INQUIRY 10](#awb-inquiry)

[AWB OFFERS NEW CONTRACT IN PUSH TO GROW WA DURUM
11](#awb-offers-new-contract-in-push-to-grow-wa-durum)

[BARLEY 11](#barley)

[Production 11](#production-1)

[Area 11](#area-1)

[Yield 12](#yield-1)

[Exports 12](#exports-1)

[Policy 12](#policy-1)

[Consumption 13](#consumption-1)

[SORGHUM 13](#sorghum)

[Production 13](#production-2)

[Exports 13](#exports-2)

[RICE 14](#rice)

[Production 14](#production-3)

[Area 14](#area-2)

[Yield 14](#yield-2)

[Exports 15](#exports-3)

# SECTION ONE: SITUATION AND OUTLOOK

## Summary {#summary-1}

A return to more normal weather conditions in 2005/06 has seen
Australian cropping industries return to more normal levels of
production. Grain production and exports have recently returned to
pre-drought levels. Depleted livestock numbers due to persistent drought
conditions has placed upward pressure on crop areas, particularly winter
cereals such as wheat and barley. Area planted to crops is forecast at
average to above average levels.

Despite reduced grain prices in recent years, the outlook for Australian
grain prices is forecast to remain firm or rise in 2006/07. This outlook
is supported by recent figures showing on-farm investment activity to
have improved significantly in recent years, aided somewhat by
historically low interest rates.

Australian economic growth in Australia is forecast at 3.0 percent in
2006/07 and this growth is projected to increase beyond the outlook
period. This combined with world economic growth is expected to see
strong demand for Australian grain both domestically and for export.
More specifically, the rise of China as a major buyer of Australian
commodities is also expected to see export demand for key agricultural
commodities, such as grain, improve.

The Australian feedgrain industry has historically played a minor role
in the overall grain market. However, recent high demand from intensive
livestock industries has seen the feedgrain sector grow in significance
as a domestic consumer and overall market.

The exclusion of U.S. Beef from the Japanese market and the subsequent
high demand for Australian beef in that market has led to record level
of cattle on feed for 2005/06. Despite expectations that this will ease
somewhat in 2006/07, post expects grain demand, particularly for feed
grain, to remain at historically high levels.

# SECTION TWO: STATISTICAL TABLES

+-------------------+-----+------+-----+------+-----+------+------+
| **PSD Table**     |     |      |     |      |     |      |      |
|                   |     |      |     |      |     |      |      |
| Wheat             |     |      |     |      |     |      |      |
+-------------------+-----+------+-----+------+-----+------+------+
|                   | **  | **R  | **  | **Es | **  | **Fo | *    |
|                   | 200 | evis | 200 | tima | 200 | reca | UOM* |
|                   | 4** | ed** | 5** | te** | 6** | st** |      |
+-------------------+-----+------+-----+------+-----+------+------+
|                   | **U | **   | **U | **   | **U | **   |      |
|                   | SDA | Post | SDA | Post | SDA | Post |      |
|                   | Of  | Es   | Of  | Es   | Of  | Es   |      |
|                   | fic | tima | fic | tima | fic | tima |      |
|                   | ial | te** | ial | te** | ial | te** |      |
|                   | \[O |      | \[O |      | \[O |      |      |
|                   | ld\ | **\  | ld\ | **\  | ld\ | **\  |      |
|                   | ]** | [New | ]** | [New | ]** | [New |      |
|                   |     | \]** |     | \]** |     | \]** |      |
+-------------------+-----+------+-----+------+-----+------+------+
| **Market Year     |     | **1  |     | **1  |     | **1  | *    |
| Begin**           |     | 0/20 |     | 0/20 |     | 0/20 | MM/Y |
|                   |     | 04** |     | 05** |     | 06** | YYY* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Area            | 13  | 1    | 11  | 1    | 0   | 1    | *(   |
| Harvested**       | 768 | 3766 | 800 | 2625 |     | 2807 | 1000 |
|                   |     |      |     |      |     |      | HA)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Beginning       | 5   | 5218 | 6   | 6907 | 7   | 7785 | *(   |
| Stocks**          | 360 |      | 893 |      | 868 |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Production**    | 22  | 2    | 24  | 2    | 0   | 2    | *(   |
|                   | 600 | 2605 | 000 | 5098 |     | 4000 | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Mkt. Yr.  | 75  | 79   | 75  | 80   | 0   | 81   | *(   |
| Imports**         |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Jul-Jun         | 76  | 78   | 75  | 79   | 0   | 80   | *(   |
| Imports**         |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Jul-Jun Import  | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| U.S.**            |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL SUPPLY**  | 28  | 2    | 30  | 3    | 7   | 3    | *(   |
|                   | 035 | 7902 | 968 | 2085 | 868 | 1866 | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Mkt. Yr.  | 14  | 1    | 16  | 1    | 0   | 1    | *(   |
| Exports**         | 742 | 4395 | 500 | 7500 |     | 7100 | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Jul-Jun         | 15  | 1    | 16  | 1    | 0   | 1    | *(   |
| Exports**         | 826 | 5440 | 000 | 7250 |     | 7200 | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Feed Dom.       | 3   | 2338 | 3   | 2600 | 0   | 2900 | *(   |
| Consumption**     | 700 |      | 900 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Dom.      | 6   | 6600 | 6   | 6800 | 0   | 7000 | *(   |
| Consumption**     | 400 |      | 600 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Ending Stocks** | 6   | 6907 | 7   | 7785 | 0   | 7766 | *(   |
|                   | 893 |      | 868 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL           | 28  | 2    | 30  | 3    | 0   | 3    | *(   |
| DISTRIBUTION**    | 035 | 7902 | 968 | 2085 |     | 1866 | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+

#  

# 

+-------------------+-----+------+-----+------+-----+------+------+
| **PSD Table**     |     |      |     |      |     |      |      |
|                   |     |      |     |      |     |      |      |
| Barley            |     |      |     |      |     |      |      |
+-------------------+-----+------+-----+------+-----+------+------+
|                   | **  | **R  | **  | **Es | **  | **Fo | *    |
|                   | 200 | evis | 200 | tima | 200 | reca | UOM* |
|                   | 4** | ed** | 5** | te** | 6** | st** |      |
+-------------------+-----+------+-----+------+-----+------+------+
|                   | **U | **   | **U | **   | **U | **   |      |
|                   | SDA | Post | SDA | Post | SDA | Post |      |
|                   | Of  | Es   | Of  | Es   | Of  | Es   |      |
|                   | fic | tima | fic | tima | fic | tima |      |
|                   | ial | te** | ial | te** | ial | te** |      |
|                   | \[O |      | \[O |      | \[O |      |      |
|                   | ld\ | **\  | ld\ | **\  | ld\ | **\  |      |
|                   | ]** | [New | ]** | [New | ]** | [New |      |
|                   |     | \]** |     | \]** |     | \]** |      |
+-------------------+-----+------+-----+------+-----+------+------+
| **Market Year     |     | **1  |     | **1  |     | **1  | *    |
| Begin**           |     | 1/20 |     | 1/20 |     | 1/20 | MM/Y |
|                   |     | 04** |     | 05** |     | 06** | YYY* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Area            | 4   | 4617 | 4   | 4739 | 0   | 4645 | *(   |
| Harvested**       | 617 |      | 100 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | HA)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Beginning       | 1   | 1847 | 1   | 1794 | 1   | 2182 | *(   |
| Stocks**          | 887 |      | 589 |      | 289 |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Production**    | 7   | 7708 | 8   | 9869 | 0   | 8900 | *(   |
|                   | 702 |      | 500 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Mkt. Yr.  | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| Imports**         |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Oct-Sep         | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| Imports**         |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Oct-Sep Import  | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| U.S.**            |     |      |     |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL SUPPLY**  | 9   | 9555 | 10  | 1    | 1   | 1    | *(   |
|                   | 589 |      | 089 | 1663 | 289 | 1082 | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Mkt. Yr.  | 4   | 4261 | 5   | 5881 | 0   | 4900 | *(   |
| Exports**         | 500 |      | 500 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Oct-Sep         | 4   | 4200 | 5   | 5900 | 0   | 4950 | *(   |
| Exports**         | 481 |      | 500 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Feed Dom.       | 2   | 2300 | 2   | 2400 | 0   | 2500 | *(   |
| Consumption**     | 600 |      | 400 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Dom.      | 3   | 3500 | 3   | 3600 | 0   | 3700 | *(   |
| Consumption**     | 500 |      | 300 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **Ending Stocks** | 1   | 1794 | 1   | 2182 | 0   | 2482 | *(   |
|                   | 589 |      | 289 |      |     |      | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+
| **TOTAL           | 9   | 9555 | 10  | 1    | 0   | 1    | *(   |
| DISTRIBUTION**    | 589 |      | 089 | 1663 |     | 1082 | 1000 |
|                   |     |      |     |      |     |      | MT)* |
+-------------------+-----+------+-----+------+-----+------+------+

#  

# 

# 

+--------------------+-----+------+-----+------+-----+------+------+
| **PSD Table**      |     |      |     |      |     |      |      |
|                    |     |      |     |      |     |      |      |
| Sorghum            |     |      |     |      |     |      |      |
+--------------------+-----+------+-----+------+-----+------+------+
|                    | **  | **R  | **  | **Es | **  | **Fo | *    |
|                    | 200 | evis | 200 | tima | 200 | reca | UOM* |
|                    | 4** | ed** | 5** | te** | 6** | st** |      |
+--------------------+-----+------+-----+------+-----+------+------+
|                    | **U | **   | **U | **   | **U | **   |      |
|                    | SDA | Post | SDA | Post | SDA | Post |      |
|                    | Of  | Es   | Of  | Es   | Of  | Es   |      |
|                    | fic | tima | fic | tima | fic | tima |      |
|                    | ial | te** | ial | te** | ial | te** |      |
|                    | \[O |      | \[O |      | \[O |      |      |
|                    | ld\ | **\  | ld\ | **\  | ld\ | **\  |      |
|                    | ]** | [New | ]** | [New | ]** | [New |      |
|                    |     | \]** |     | \]** |     | \]** |      |
+--------------------+-----+------+-----+------+-----+------+------+
| **Market Year      |     | **0  |     | **0  |     | **0  | *    |
| Begin**            |     | 3/20 |     | 3/20 |     | 3/20 | MM/Y |
|                    |     | 05** |     | 06** |     | 07** | YYY* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Area Harvested** | 803 | 803  | 750 | 889  | 0   | 773  | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | HA)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Beginning        | 63  | 150  | 235 | 477  | 130 | 531  | *(   |
| Stocks**           |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Production**     | 2   | 2184 | 2   | 2308 | 0   | 1988 | *(   |
|                    | 177 |      | 000 |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Mkt. Yr.   | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| Imports**          |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Oct-Sep          | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| Imports**          |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Oct-Sep Import   | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| U.S.**             |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL SUPPLY**   | 2   | 2334 | 2   | 2785 | 130 | 2519 | *(   |
|                    | 240 |      | 235 |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Mkt. Yr.   | 200 | 262  | 500 | 299  | 0   | 275  | *(   |
| Exports**          |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Oct-Sep          | 370 | 262  | 500 | 299  | 0   | 275  | *(   |
| Exports**          |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Feed Dom.        | 1   | 1591 | 1   | 1950 | 0   | 1850 | *(   |
| Consumption**      | 800 |      | 600 |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Dom.       | 1   | 1595 | 1   | 1955 | 0   | 1855 | *(   |
| Consumption**      | 805 |      | 605 |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Ending Stocks**  | 235 | 477  | 130 | 531  | 0   | 389  | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL            | 2   | 2334 | 2   | 2785 | 0   | 2519 | *(   |
| DISTRIBUTION**     | 240 |      | 235 |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+

#  

# 

+--------------------+-----+------+-----+------+-----+------+------+
| **PSD Table**      |     |      |     |      |     |      |      |
|                    |     |      |     |      |     |      |      |
| Rice, Milled       |     |      |     |      |     |      |      |
+--------------------+-----+------+-----+------+-----+------+------+
|                    | **  | **R  | **  | **Es | **  | **Fo | *    |
|                    | 200 | evis | 200 | tima | 200 | reca | UOM* |
|                    | 4** | ed** | 5** | te** | 6** | st** |      |
+--------------------+-----+------+-----+------+-----+------+------+
|                    | **U | **   | **U | **   | **U | **   |      |
|                    | SDA | Post | SDA | Post | SDA | Post |      |
|                    | Of  | Es   | Of  | Es   | Of  | Es   |      |
|                    | fic | tima | fic | tima | fic | tima |      |
|                    | ial | te** | ial | te** | ial | te** |      |
|                    | \[O |      | \[O |      | \[O |      |      |
|                    | ld\ | **\  | ld\ | **\  | ld\ | **\  |      |
|                    | ]** | [New | ]** | [New | ]** | [New |      |
|                    |     | \]** |     | \]** |     | \]** |      |
+--------------------+-----+------+-----+------+-----+------+------+
| **Market Year      |     | **0  |     | **0  |     | **0  | *    |
| Begin**            |     | 3/20 |     | 3/20 |     | 3/20 | MM/Y |
|                    |     | 05** |     | 06** |     | 07** | YYY* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Area Harvested** | 48  | 48   | 115 | 105  | 0   | 118  | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | HA)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Beginning        | 550 | 308  | 406 | 96   | 381 | 294  | *(   |
| Stocks**           |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Milled           | 231 | 231  | 715 | 716  | 0   | 782  | *(   |
| Production**       |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Rough            | 323 | 323  | 1   | 1001 | 0   | 1098 | *(   |
| Production**       |     |      | 000 |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **MILLING RATE     | 7   | 7150 | 7   | 7150 | 0   | 7150 | *(   |
| (.9999)**          | 150 |      | 150 |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Imports**  | 125 | 105  | 110 | 110  | 0   | 105  | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Jan-Dec          | 125 | 105  | 105 | 105  | 0   | 110  | *(   |
| Imports**          |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Jan-Dec Import   | 0   | 0    | 0   | 0    | 0   | 0    | *(   |
| U.S.**             |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL SUPPLY**   | 906 | 644  | 1   | 922  | 381 | 1181 | *(   |
|                    |     |      | 231 |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Exports**  | 105 | 188  | 450 | 258  | 0   | 501  | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Jan-Dec          | 100 | 175  | 500 | 250  | 0   | 450  | *(   |
| Exports**          |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL Dom.       | 395 | 360  | 400 | 370  | 0   | 380  | *(   |
| Consumption**      |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **Ending Stocks**  | 406 | 96   | 381 | 294  | 0   | 300  | *(   |
|                    |     |      |     |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+
| **TOTAL            | 906 | 644  | 1   | 922  | 0   | 1181 | *(   |
| DISTRIBUTION**     |     |      | 231 |      |     |      | 1000 |
|                    |     |      |     |      |     |      | MT)* |
+--------------------+-----+------+-----+------+-----+------+------+

#  SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING

## General

The 2006 forecast year for wheat production begins with Harvest in
October 2006 (Market year begin 10/2006). However this crop will likely
be sown in April/May 2006. Barley is similar, however the forecast year
begins in November (Market year begin 11/2006). Barley is a slightly
shorter season crop and planting will likely commence May/June 2006 and
harvest in November 2006.

The 2006 forecast year for summer crops Sorghum and Rice begins with
harvest in March 2007 (Market year begin 03/2007). However, these crops
will likely be planted about October/November 2006. Depending on
seasonal conditions, Australia can also plant a "late" sorghum crop,
which may be planted as late as December/January and harvested in
May/June -- however post treats sorghum as one crop for the purpose of
this report.

Planting and harvest times can vary widely from the suggested times due
to differences in climate between crop producing regions, and
season-to-season variation in weather patterns.

## Weather Conditions

Australia appears to have emerged from prolonged drought conditions,
which began in 2002/03, with a near record 25 MMT wheat crop for
2005/06. Although conditions are described as dry at time of writing
this report, planting for 2006/07 winter cereal crop is not expected to
commence until March/April and is not likely to conclude until May/June
allowing ample time for soaking rains. Post anticipates average seasonal
conditions and has forecast production of wheat and barley at levels
slightly above the historical average.

Planting of the 2007/08 summer crop (sorghum and rice) is not expected
to begin until October/November 2006 and will not be harvested until
April/May 2007. 2007/08 summer crop production remains highly dependant
on irrigation water reserves, which have recovered significantly from
historical lows endured during the drought. Water storage levels are
expected to recharge further over the next 6 months in the lead-up to
summer crop planting.

Post advises that a return to drought conditions in CY 2006 would likely
see production forecasts for the 2006/07 winter crops and the 2007/08
summer crops revised downwards.

## WHEAT

### Production

Wheat production for 2006/07 is forecast at 24.0 MMT, about 1.0 MMT
below the recently revised crop of 25.1 MMT for 2005/06. The 2006/07
forecast represents an average sized crop. According to ABARE's
historical data, a 24.0 MMT crop would be considered the fifth largest
crop on record. It is also interesting to note that seven out the past
ten crops have fallen within the range of 22-26.0 MMT.

![](media/image2.wmf)

*Source: ABARE Data*

Industry and government sources remain optimistic with regard to the
2006/07 wheat production outlook. ABARE recently forecast wheat
production at 24.5 MMT while industry analysts vary between 23.5 MMT and
24.5 MMT.

Long range projections recently published by ABARE have wheat production
increasing year-on-year to 27.7 MMT in 2010/2011. This forecast is
generally reflective of on-farm activity with ABARE estimating capital
expenditure to have increased strongly in recent times.

### Area

The area planted to wheat in 2006/07 is forecast at 12.8 million
hectares, and represents a slight increase on the revised estimate of
12.6 million hectares planted in the previous year. Larger areas planted
to winter cereals is reflective of falling sheep numbers in key mixed
farming areas due to drought and low wool prices. High livestock prices
following the drought have prevented many mixed farmers from restocking.
Winter cereal production is viewed as a faster way of increasing
productivity in post- drought circumstances.

According to ABARE's historical data, a planted area of 12.8 million
hectares, if achieved, would represent the fourth largest planted area
in the past decade.

![](media/image3.wmf)

*Source: ABARE Data*

### Yield

Post forecasts for 2006/07 have assumed a yield of about 1.87
MT/hectare, well under the near record yield assumed for the previous
year but slightly above average. ABARE historical data shows an average
year of 1.83 MT/hectare over the past decade but includes drought
affected yields.

### Exports

Exports of wheat in 2006/07 are forecast at 17.1 MMT, slightly below the
sharply revised estimate of 17.5 MMT for the previous year. Lower
forecast production is likely to see exports fall slightly. Post has
assumed export demand in key markets to remain unchanged in 2006/07. A
major disruption in a key market, such as Iraq, may see exports decline
(See Policy Section).

If achieved exports of 17.1 MMT in 2006/07 would be considered above
average. However, export levels depend upon crop quality. Poorer quality
grain (particularly weather damaged) is typically consumed domestically
rather than exported. Post has assumed average crop quality for 2006/07,
however poorer-than-average crop quality would likely see forecast
exports revised downwards.

![](media/image4.wmf)

*Source: ABARE Data*

### Consumption

Total domestic consumption for 2006/07 is forecast at just under 7.8
MMT, down only slightly from the previous year. Despite this fall, this
forecast represents historically high consumption. Relatively strong
economic growth has seen domestic demand, for food grade wheat, grow
steady over the past five years. Record numbers of cattle on feed and
strong demand from chicken and pork production has also seen consumption
of wheat for stock feed grow significantly in recent years. Industry
analysts have predicted that at current rates of growth, Australian
intensive feeding industries will likely face tightening supplies of
feed grain in the years ahead.

### Policy

## AWB INQUIRY

The Australian Wheat Board (AWB) is undergoing a Royal Commission of
inquiry into its involvement in the Iraq Oil-for-Food scandal to
determine if its actions violated Australian law. Prime Minister (PM)
Howard called for the independent Royal Commission of inquiry in
November 2005 following the report of an independent United Nations
inquiry into the Oil-for-Food program (The 'Volcker report') that found
that the approximately \$220 million the AWB allegedly paid for
transport services in Iraq was actually funneled to the Iraqi
government. AWB sold \$1.7 billion worth of wheat to Iraq under the U.N.
Oil-For-Food Program. The findings of the 'Cole inquiry,' named for
inquiry head, Commissioner Terence Cole, are expected to be handed down
by early June 2006.

Grain producers are concerned that the reputation of Australian wheat
internationally has suffered as a result of AWB activities. On February
15, following the Iraqi Wheat Board decision to suspend purchases of AWB
wheat pending the conclusion of the Cole inquiry, the PM announced that
the AWB would abstain from using its veto power to allow other
Australian companies to compete for a large Iraq contract. AWB stock
value has dropped 40 percent since the start of the inquiry.

The inquiry has served to bring the role of single desks into the
spotlight, forcing discussion of the costs and benefits. The recurring
government review of the AWB's single desk authorities is not scheduled
until 2010. However, in light of the revelations from the Cole Inquiry,
some within Australia are calling for more immediate action to change
the single desk authority.

## AWB OFFERS NEW CONTRACT IN PUSH TO GROW WA DURUM

The AWB has launched a new contract to stimulate Western Australian (WA)
durum production in 2006 to a targeted 100,000 tons. A hectare-based,
fixed-price contract is being offered exclusively to Western Australian
durum wheat growers at a significant premium over bread wheat with
flexibility over tonnage and quality. Contracts up to 50,000 hectares
will be initially offered. According to AWB sources,
![](media/image5.png){width="1.0416666666666666e-2in"
height="9.375e-2in"}despite strong Italian demand for WA durum,
production in that state has been held in check because there is a
widely-held view that durum does not perform as well in the field as
bread wheat, making farmers reluctant to grow it. (Source: Farm Weekly,
WA, January 24, 2006)

## BARLEY

### Production

Australian Barley production for 2006/07 is forecast at 8.9 MMT, down
just under 1.0 MMT from the revised estimate for the previous year.
Barley production is often inflated by a "late seasonal break" which
postpones winter cereal planting, favoring shorter season barley. Such
conditions potentially see large areas switched from wheat production to
barley, as was the case in 2005/06. In formulating the 2006/07 barley
production forecast, Post has anticipated normal planting conditions.

If achieved, a figure of 8.9 MMT for 2006/07 would represent an above
average production, despite the significant fall from the previous year.

![](media/image6.wmf)

*Source: ABARE Data*

### Area 

Total area sown to barley in 2006/07 is forecast at 4.6 million
hectares, down slightly on the previous year despite the forecast
significant fall in production. Lower livestock numbers in key growing
areas will likely see area remain historically high. Sheep numbers in
mixed farming areas have been falling steadily for the past decade and
historical barley area has been trending upward over this period.

![](media/image7.wmf)

*Source: ABARE Data*

### Yield

Post's barley forecasts for 2006/07 have assumed a yield of 1.92 MT per
hectare, down from the assumed average yield of 2.08 MT per hectare for
the previous year. Post has assumed average weather conditions and so
has assumed a yield closer to the historical average.

ABARE, in its barley forecast for 2006/07 has assumed a yield of 2.0 MT
per hectare. Over the past decade there have only been three barley
crops with the average yield higher than 2.0 MT per hectare.

![](media/image8.wmf)

*Source: ABARE Data*

### Exports 

Barley exports for 2006/07 are forecast at 4.95 MMT, down sharply on the
previous year. This downward shift in exports is likely to be driven by
lower forecast production. Strong domestic consumption is likely to see
the shortfall in production taken from exports. Post has assumed average
crop quality in forecasting exports and advises that a below average
crop would likely see exports fall further in 2006/07.

### Policy

The Australian barley industry is perhaps now entering the final stages
of deregulation. Over the past decade, Australian Barley has been
marketed by state monopolies, which have included the NSW Grains Board
in News South Wales, Grainco in Queensland, the Coarse Grains Board in
Western Australia and the Australian Barley Board in Victoria and South
Australia. However, the states of Victoria, New South Wales and
Queensland are now completely deregulated.

Currently, ABB Grain (formerly the Australian Barley Board) operates the
barley monopoly in South Australia. CBH in Western Australia (WA) holds
similar rights for barley, although WA recently implemented an export
permit system, which allows for limited competition. Grain growers in
South Australia are currently being surveyed in an effort to determine
the level of regulation for that state.

### Consumption

Total barley consumption for 2006/07 is forecast at 3.7 MMT, up slightly
on the previous year. The increase of 100,000 MT is likely to be driven
by increased feedgrain demand. Post advises that numbers of "cattle on
feed" are at historically high levels while "feedlot capacity" is at an
all time record. Post anticipates strong feedgrain demand for barley
throughout 2006/07.

## SORGHUM

### Production

Australian sorghum production for 2007/08 is forecast at 1.99 MMT, down
slightly on the revised level of production for the previous year. In
arriving at this forecast Post has assumed average weather conditions in
the lead-up to the 2007/08 season, rather than the above average
conditions experienced in the lead up to the 2006/07 season.

The production forecast of 1.99 MMT in 2007/08 is considered to be above
average when considering historical data, although this figure is closer
to the average excluding drought years. Near record levels of cattle on
feed have driven recent increases in domestic demand and this, combined
with post's expectations of normal seasonal conditions has led to the
forecast of above average production.

![](media/image9.wmf)

*Source: ABARE Data*

Planted area is forecast to fall in 2007/08 with anticipated average
seasonal conditions. Sorghum is typically seen as an opportunity crop by
many growers and typically above average planted areas are associated
with above average rainfall in the lead up to planting.

Post has assumed a total average yield of 2.57 MT per hectare in
arriving at the 2007/08 forecast, almost directly in line with the
historical average. This forecast represents a slight fall on the
assumed yield of 2.59 MT per hectare for the previous year.

### Exports

Australian Sorghum exports for 2006/07 are forecast at 275,000 MT. This
forecast represents a modest fall on the revised estimate for the
previous year and reflects slightly lower production levels. Exports at
this level are considered below average and are reflective of the high
levels of domestic demand in the stock feed sector.

## RICE

### Production

Australian rice production for 2007/08 is forecast at 1.1 MMT, up on the
revised estimate of 1.0 MMT for the previous year. Steadily improving
reserves of irrigation water are likely to see production increase
during the forecast year. Despite the significant increases in
production over the past three years, the 2007/08 forecast remains
representative of the long-term average. Severe drought, which began in
2002/03, resulted in dramatic production declines.

According to industry sources, the past three years has seen much
restructuring in the Australian rice industry. This restructuring is
believed to have significantly lowered the productive capacity of the
Australian rice industry. Production in the order of 1.0 MMT is now
believed to be close to full productive capacity under current
conditions.

![](media/image10.wmf)

*Source: ABARE Data*

### Area

Total planted area for 2007/08 is forecast to reach 118,000 hectares, up
on the revised estimate for the previous year and close to the long term
average established using ABARE data. A return to more normal weather
conditions has seen reserves of irrigation water supplies steadily
improve in 2005/06. Supplies are expected to continue improving steadily
in 2006/07 as the effects of normal weather conditions materialize.

![](media/image11.wmf)

*Source: ABARE Data*

### Yield 

Post's 2007/08 forecast for Australian rice production assumes a total
average yield of 9.3 MT per hectare. If achieved this would be the
fourth highest yield on record and well above the long-term average of
8.7 MT per hectare. Post has assumed more normal weather conditions free
of extreme weather events such as frost or drought.

### Exports

Australian rice exports are forecast 501,000 MT, nearly double the
previous year. Substantial increases in forecast production combined
with an improved stocks situation are likely to see exports increase to
a level more reflective of the longer-term average.

![](media/image12.wmf)

*Source: ABARE Data*

#