Disappointments Down Under

According to yesterday’s Dun and Bradstreet Report, D&B National Business Expectations, “Australian businesses are preparing themselves for their worst start to a new financial year since the 1991 recession.”

The report showed that not only are Australian businesses’ sales, profits, and employment growth results for the March 2005 quarter in negative territory, representing the worst results in years, but expectations for the first quarter of 2005-6 have also been downgraded for sales, profits, growth, retail sales, capital investment, and inventories.

While Australian businesses reel at the implications of such news, ruralites Down Under are also sweating–literally.

Australia is currently experiencing its third worst drought in history, and the worst its farms have seen since the 1940s. Low precipitation and extremely hot temperatures are to blame.

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Thing is, Australian farmers have seen similar conditions for the past few years. In fact, some rural areas have seen zero income in the last two or three harvest seasons. That’s $0 in income for the past two years–just imagine! National Farm Debt has understandably grown 100% in the past five years, and farm owners don’t know how much more of this they can really take.

The situation is so dire, in fact, that rural suicides in Australia are amongst the highest in the world. Seventeen out of every 100,000 farmers commit suicide in a desperate attempt to alleviate their depression, caused by years of low income, mounting debt, and withering production. This rate is above the National Suicide Rates in both Canada and the United States.

On Tuesday, June 7, 2005, rural Australia felt the shock of the forecast for wheat crops plummeting 29%. For a country that controls 15% of the world wheat trade, that’s serious news. The global supply/demand balance for wheat is also expected to feel the heat, as such a dramatic drop in production from a high profile exporter will certainly tighten current inventories of the grain.

The current drought is expected to shave 0.2% off the country’s GDP for the year ended June 2006, and the Australian government reports that the country’s overall economic growth is being negatively affected by the drought, beyond the damage done by slowing business sectors.

AWB stock, Australia’s monopoly wheat exporter, has dropped 14% in last two months. Yesterday alone, shares of AWD saw a 3.4% drop.

The slowdown in economic growth we’re seeing in North America and the European Union is also clearly apparent in Australia.

Considering the current reality in the country’s agricultural sector, it looks like the next couple of years will be rough for everyone living in the land Down Under.

The situation at hand in Australia only worsens the outlook for the global economy. If you haven’t already, be prepared to tighten your belt, as we’ll all be eating fewer carbs when the price of grains escalates and the profile of our wallet shrinks.