Australian farmers have planted record amounts of wheat and canola, setting the foundation for a massive harvest year amid escalating fears of a global food crisis.

Analysts with agricultural investment bank Rabobank have forecast Australia’s total planted crop area will reach 23.83 million hectares – a 1% increase on the previous year’s record-breaking coverage and 11% higher than the five-year average.

Wheat and canola have played a significant role in this increase, the analysts noted, with wheat planting up 1.4% and canola up 20.9% to record levels.

These increases have, however, come at the expense of planting other crops, Rabobank said, notably barley, oats and pulses.

Even so, Rabobank noted markets are watching the record planting in Australia with eager eyes, hoping the country can deliver a third consecutive year of “great grain and oilseed production” as elevated fuel costs, a fertiliser shortage and supply chain weakness following Russia’s invasion of Ukraine threaten global food security.

RaboResearch agricultural analyst Dennis Voznesenski – one of the analysts behind the report – said Australia looks likely to deliver above-average crop yields this year, albeit slightly weaker than those recorded last year.

However, he cautioned it remains too early in the season to confidently say what will happen, noting there may be “surprises” in store for farmers later in the year.

Food and commodity prices remain elevated

In the more than 100 days since Russia invaded Ukraine, food prices have soared around the world with the UN’s Food and Agriculture Organisation’s (FAO) food price index showing prices in May this year are 22.8% higher than the same month in 2021.

Wheat, in particular, has seen significant increases in price. The FAO’s index shows the grain lifted 5.6% in May to mark its fourth consecutive month of gains, and is currently trading at prices 56.2% above its price in May last year.

“The steep increase in wheat prices was in response to an export ban announced by India amidst concerns over crop conditions in several leading exporting countries, as well as reduced production prospects in Ukraine because of the war,” the report said.

Ratings agency S&P Global has cautioned that investors are underestimating the severity of the food shock set to rock markets in the later half of the year as these supply challenges continue.

The effects will be particularly felt among emerging market economies, which will struggle to find alternatives for key crops as they are priced out of their usual supplies, increasing the risk of social unrest and foreign debt defaults.

Meanwhile, investors are increasing their exposure to agricultural commodities markets looking to capitalise on their year-to-date outperformance of equities and potential as a hedge against inflation.

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Sources:

• Rabobank, ‘Hopes for a hat trick’
• Quartz, It’s been 100 days since Russia invaded Ukraine
• Aljazeera, Ukraine war ‘aggravating’ existing global food crisis, UN warns
• Fao.org, The FAO Food Price Index fell for the second consecutive month in May
• Financial Times, Global food price ‘shock’ amplifies risks for emerging markets
• Nasdaq.com, Agriculture Commodities See Robust Gains in April