Feed Grains: Future supply and demand in Australia
An ABARE / GRDC Report
by Amhed Hafi and Peter Connell

This report highlights the regions and industries where growth in demand for feed grains is likely to occur and the availability of feed grain supplies to meet this growing demand.

SUMMARY

Over the past decade there has been a steady increase in the sale of grains on the domestic market, with nearly all of the increase being for feeding purposes. Use by the feedlot, intensive livestock and the dairy industries increased steadily over this period. For Australian grain growers, the domestic market represents a growing market and an increasingly important alternative to delivering grain to pools for disposal largely on export markets.

The key issues confronting Australian feed markets are the reliability of feed supplies and the competitiveness of the livestock industries in export markets for livestock products.

The high cost of grain transport has been identified as another major issue confronting the livestock industries.

One way to increase feed production domestically is for the feed grains industry to develop new feed grain varieties that can compete with food grains on grain farms and with substitute feed stuffs including imported feed on livestock farms. For example, past investments in research and development (R&D) have resulted in the development of waxy sorghum varieties with higher ruminant metabolisable energy content.

To assess developments in Australian feed markets, ABARE has developed a regional feed demand and allocation model. The model can be used to analyse the complex livestock and grain industry-wide impacts of changes in the factors influencing feed supply and demand.

The model was applied first to develop a ‘business as usual’ or base case and then to simulate three key ‘what if’ cases to explore the livestock and grain industry-wide impacts of changes expected if some actions outlined in the feed grain industry’s Feed Grain Security Plan developed in 2001 were to be implemented.

ABARE’s latest projections of production and prices of feed grains and animal numbers for the 2003-04 to 2007-08 period and Australian Bureau of Statistics’ 2001 Agricultural Census data on the regional distribution of grain production and livestock industries formed the basis for the analysis. Total feed grain availability is projected to

increase slightly from 21.5 million tonnes in 2003-04 to 21.8 million tonnes in 2007-08. This small increase in projected production is the result of the small fall in the projected area under grain being more than offset by a projected increase in crop yields over the period. On the demand side, the largest increases in livestock numbers over the period to 2007-08 are projected in the cattle feedlot category (up 29 per cent), poultry meat production (up 15 per cent) and pork production (up 16 per cent). Given that the drought affected sheep flock is projected to be rebuilt over the next five years, no growth is foreseen in the live sheep trade during this period.

Base case

Total use of all main ingredients (wheat, barley, maize, sorghum, oats, triticale, lupins, peas, faba beans, soybean meal, sunflower meal, canola meal, cottonseed meal, cottonseed, mill mix and rice pollard) in all demand regions in Australia is projected to increase from 8.9 million tonnes in 2003-04 to 10.5 million tonnes in 2007-08 largely reflecting the projected growth in animal numbers over this period. The projected growth in feed use is expected to be driven by the cattle feedlot industry, with consumption of feed ingredients by this industry increasing by 29 per cent over the five year period. Of the other industries, consumption of feed grains is forecast to increase by 12 per cent in the pig industry, 15 per cent in the broiler industry and 7 per cent in the dairy industry.

Over the projection period, demand for main feed ingredients is projected to increase strongly in northern New South Wales and Queensland, reflecting the concentration of beef feedlot industries in these areas, and in the Victorian eastern, the New South Wales Hunter and the Queensland southern demand regions where the poultry meat industry is most heavily represented.

Around 30 per cent of all main feed ingredients consumed is projected to be used in each of New South Wales and Victoria, with the main feed ingredients used in Queensland accounting for just over 20 per cent of total Australian use.

In 2007-08, approximately 400 000 tonnes of feed, mainly wheat, lupins and barley, is projected to be shipped from Western Australia and South Australia to east coast regions, particularly Victoria and the Queensland central and New South Wales north and Sydney southern regions. However, compared with the large feed flows that occurred during the 1994-95 and 2002-03 droughts, the feed flows projected in the base case are significantly smaller.

‘What if’ cases

For the current study, three ‘what if’ cases were formulated in consultation with the grains and livestock industries to investigate the impacts of implementing some actions outlined in the Feed Grain Security Plan developed in 2001. They are:

• an increase in production of feed barley in eastern Australia;

• the introduction of waxy sorghum; and

• a 15 per cent reduction in grain transport costs.

It is assumed that all the changes simulated are introduced in 2007-08, and the results from these simulations are compared with the base case results for that year. One common and key result for all three cases is that the cost of feeding livestock would be lower and this would contribute to an improvement in the competitiveness of the livestock industries. Given the projected livestock numbers for 2007-08, the projected cost savings were $9 million, $23 million and $27 million respectively in 2007-08. However, the benefits were distributed differently among the livestock industries in the three cases. The bulk of the benefits realized from increased availability of feed barley in the eastern states went to the dairy and chicken meat industries, while the cattle feedlot industry benefited the most from the introduction of waxy sorghum. The benefits from reductions in ocean freight costs from Western Australia and South Australia to the eastern states and in land freight rates were distributed more widely across the dairy, pigs, cattle feedlot and broiler industries, with each projected to receive a cost saving of over $5 million in 2007-08.

The first two cases resulted in increased availability of feed energy in the eastern states and this would be expected to contribute to an improvement in the reliability of supply in those states.

Increased production of feed barley

The simulated increase in the production of feed barley in the eastern states is projected to lead to a 37 per cent reduction in grain shipments to the eastern states from both Western Australia and South Australia relative to the base case. The increased production of feed barley in the eastern states is projected to change the use of feed wheat, barley, oats and lupins, with the key result being the replacement of feed wheat with feed barley. Much of the increased production of barley is consumed in the cattle feedlots in the northern demand regions, largely at the expense of wheat. In the pig industry, barley use is projected to increase largely at the expense of oats.

Introduction of waxy sorghum

For this case, half of the sorghum produced in 2007-08 is assumed to be of a waxy variety that has a higher ruminant metabolisable energy content. The results in this case are similar to the case of increased production of feed barley as both cases lead to increased availability of ruminant metabolisable energy in the eastern states. The simulated introduction of waxy sorghum is projected to lead to a 25 per cent reduction in grain shipments to eastern states from Western Australia relative to the level projected in the base case.

Reduction in grain transport cost

Under the assumption that ocean freight costs are lower, grain shipments from Western Australia to the eastern states are projected to be around 210 000 tonnes, or around 70 per cent, higher than in the base case. Most of the shipments are of lupins. The shipments are destined for a variety of eastern state markets with a fl ow-on effect of an increase in feed grain exports mainly from New South Wales of around 150 000 tonnes compared with the base case.

All three ‘what if’ cases resulted in lower costs of feeding livestock and therefore would contribute to improving the competitiveness of the livestock industries. However, the benefits were distributed differently among the livestock industries in the three cases. The increased availability of feed barley in the eastern states as a result of producing more feed barley at the expense of malting barley is expected to contribute to an improvement in the reliability of supply in those states. The ongoing work on the development of new feed ingredients, such as waxy sorghum, is also expected to increase the production of specialty feed grains.

The full report is at http://grdc.com.au/bookshop/docs/feedgrains_supplyanddemand2003.pdf