The Wheat Fields around Walgett

At this time of year, country towns are normally a hive of activity.

From central Queensland, down into northern NSW. Across the Murray River into Victoria, and over to SA. It’s the same on the west coast as well.

Cartage contractors shadowing massive harvesters, as they head onto their next job. Truck drivers in shorts and singlet, fueling up, and topping up, with cold drinks.

Kids riding their bikes to the local milk bar to get an ice cream. Then off to the local pool or river for a swim. The heat melts the road, permeating every building and structure.

Vultures fight over road kill baking in the sun. Brown snakes, as thick as your forearm, feast on rodents that overfed themselves on grain.

WA steps up to the plate

From September into the New Year, the winter harvest goes in. Wheat, barley and canola, in the main, plus some chickpeas as well.

Trucks line up three and four abreast at grain terminals waiting to unload. The queue sometimes so deep that they run out along on the road.

Some drivers snooze. Others just shoot the breeze. Waiting to have their cargo graded, before running over the weighbridge. Then tipping off at their designated silo, before heading back out again.

Each truck sent to the terminal in which the farmer will get the best price.

From Burren Junction, through Wee Waa and into Narrabri. Or back along Kamilaroi Highway, through Cryon and into Walgett. Even a couple of dollars per tonne makes a big difference.

The grain is either stored, or sent on its way. Trucked or trained into port, before heading overseas.

This year, though, not all that grain will make its way overseas. Nor used to fulfil local contracts.

The Department of Agriculture and Water Resources estimate this year’s crop will be 20% below the average for the last 20 years, and 23% lower than last year. All up, the Department forecast a total of 29.3 million tonnes.

With the drought savaging the east coast, WA will contribute 56% of the national grain production for 2018/19. That is well above its average of 36%.

That amount is barely half of that produced only a couple of years ago in 2016/17. Staggeringly, though, it is still 69% higher than the lowest recorded amount over the same two decades.

Not only will there be less grain than average, but a chunk of it will head from west to east.

As the ABC reported, Queensland received its first shipment of WA grain in August. 30,000 tonnes arrived in Brisbane by ship, destined for cattle farmers ravaged by drought.

As the report continued, that’s roughly the amount required to supply the feedlots in Southern Queensland for about one week.

Local silos are near empty, and the cost of hay and any grain remaining, has gone through the roof.

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Meat prices to head skywards

Farmers now have the unenviable task of reducing their herd size, as they can no longer afford to feed all the stock that they have.

It’s not just red meat, but chicken and pork as well. Grains are the staple food in most feedlots.

And the famous ‘long paddock’ — the 70,000-odd kms of public roads where drovers can feed their herds on roadside grass — has also run out of feed in vast areas. Some councils have even closed the routes indefinitely.

It all means that for consumers, the cost of meat will inevitably rise as demand exceeds supply. It is just another thing that will erode the value of the weekly wage.

Of course, the story of drought in nothing new. It is something that Australia has, and always will have to, deal with.

But what often gets lost is the multiplier effect.

All those trucks and drivers not buying fuel and food. Less mechanics fixing breakdowns on the side of road. Less buying of parts and equipment — less spending in the economy — as everybody tightens their belt.

A drought affects every part of the economy — not just our farmers.

The indirect effect

When car manufacturing closed in Australia, it took with it not just the direct jobs, but all those periphery companies that relied on it as well.

Those that made seats and seatbelts, windscreens and dashboards — even the workforce required to make all those tyres. They all had to close shop, or drastically reduce their head count.

That is why governments subsidised the industry for so long — a long while after it was no longer economic. The real job loss was many times more than the headline number.

The difference with agriculture, though, is that unlike global car manufacturing, there is not excess supply. The world has too many car manufacturers, but not enough food supply.

The demand for food will only increase, along with the size of the global population.

Add in the demand for a better quality of life for the rising middle class (particularly in China), and the demand for food will ramp up even further.

There will always be parts where farming is not economic. On marginal land where good years will never make up for the bad. And sure enough, that still won’t stop some from having a go.

But surely agriculture, given its most basic but important task of all — feeding us — should hold a much bigger place in the minds of our governments. Much more so than the latest populist cause.

And given our proximity to Asia, if the government manages it properly, could create the next leg of our economic growth.

Matt Hibbard

Editor, Options Trader

While many investors chase quick fire gains, Matt takes a different view. He is focused on two very clear goals. First: How to generate reliable and consistent income in a low-interest rate world. And second, how you can invest today to build wealth over the next 10–15 years. Matt researches income investments. You can find more of Matt’s work over at Total Income, where he is hunting down the next generation of dividend-paying companies for the future. He is also the editor of Options Trader, where he uses basic options strategies to generate additional streams of income beyond the regular dividend payments. Having worked for himself and with global firms for almost three decades, Matt has traded nearly every asset in existence. But now he is on a very different mission — to help investors generate income irrespective of what the market is doing. It’s about getting companies to pay you a steady, stable income, with minimal stress and the least risk possible. Matt doesn’t believe you have the luxury of being a bull or a bear in the market right now. You have to earn an income from it, regardless of whether stocks are going up or down. By getting the financial markets to pay you an income, you can get to focus on more important things than just money.

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