October 26, 2018 / 4:27 AM / 19 days ago

Drought to cut east Australia crop output in half from 20-year average

MELBOURNE, Oct 26 (Reuters) - Drought is expected to cut eastern Australia’s crop production this year to less than half the average over the past 20 years, with New South Wales to be worst hit, the country’s agricultural commodities forecaster said on Friday.

While some regions are facing the worst conditions in memory, the Australian Bureau of Agricultural and Resource Economics said the drought-hit areas are smaller than in previous droughts.

The winter crop in New South Wales, one of the country’s key wheat growing areas, is expected to be 65 percent below the 20-year average in the year to June 2019, the bureau said in an analysis of the 2018 drought prepared for a summit in Canberra on Friday.

Overall eastern Australia production is forecast to fall 53 percent, but for the country as a whole, output will only be down 23 percent thanks to a larger than average crop in Western Australia.

About half the farm land in southeastern Australia is suffering 1-in-20 year drought conditions, compared with more than 80 percent that was hit during the worst of the 2002-03 drought, the bureau said.

There has been little change in slaughter rates for cattle and sheep compared to the previous 20 years, even though pastures have been devastated by lack of rain, suggesting that farmers have turned to supplementary feed rather than selling stock for slaughter.

“Prices for sheep and cattle are high by historical standards, and much higher than in previous droughts ... which means that feeding stock has been profitable in many cases,” the bureau said.

It added that many sheep and cattle had been moved from the worst affected farms in northern New South Wales to regions where conditions were better.

“Cattle numbers in feedlots are at all-time highs,” the report said.

The bureau warned that a large porportion of farms are likely to make “significant cash losses in 2018-19” but others would perform relatively well.

Overall farm incomes were likely to decline by “substantially less” than in previous droughts, thanks to more favourable economic conditions, including improved productivity, strong prices for livestock, and rising milk prices.

The Australian government on Friday proposed setting up a A$3.9 billion ($2.8 billion) fund for water infrastructure and drought related projects to buffer farming communities from future droughts.

Reporting by Sonali Paul; editing by Richard Pullin

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