While everyone looks over their breakfast plate at the morning news about the deterioration of the global economy, a brewing debacle is likely to hit in 1Q 2009 in Australia's farm sector.
The majority of Australia's southern cropping zone has been hit with adverse weather conditions leading to reduced yields from drought and frost and ghastly quality downgrades as a result of summer rain damage. Quality downgrades from bread wheat or malt barley leads to around a 50% reduction in grain price realisation. Farmers spurred on by high grain price in the first half of this year likely spent up whilst at the same time chose to remain unhedged in the confidence grain prices would remain high and even push higher. Now they are forced sellers into below cost price levels. Many will fail to clear much of their overdraft and be looking to increase borrowings. Something that just won't be possible with land values likely to fall.
Watch this space ... but likelihood is for a kind of subprime story to be unfolding. It will be happening all around the world. Food shortages are a given in by the end of 2009 or 2010.
