Australia's drought has slashed grain production, driven the national cattle herd to 25-year lows and stripped away export value, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

Key points: Farm production forecast to drop 3 per cent in coming season

Farm production forecast to drop 3 per cent in coming season Australia imports grain for first time since 2007

Australia imports grain for first time since 2007 Value of livestock exports forecast to drop by 11 per cent

But, in its latest forecast and a series of farmer confidence surveys there are signs of positivity emerging among Australia's farmers.

ABARES reported the total value of Australia's farm production will drop 3 per cent in the coming 2019-20 season to $59 billion, while export earnings will drop by 4.5 per cent, due to declines in beef, wool, lamb and cotton.

Australia usually ranks among the world's top grain exporting nations, and cropping typically accounts for about a quarter of the value of Australia's farm produce, but this year, Australia will import grain for the first time since 2007.

Australian-owned Manildra Group is the importer and in an open letter to grain growers said it will need to import high protein wheat until the end of 2019.

"It is the first time in Manildra Group's 67-year history that exceptional drought circumstances have forced the requirement to import," the letter said.

The Agriculture Department has so far permitted Manildra to import three shipments of wheat which will be processed into gluten and starches, to be used in food and industrial manufacturing, at its Nowra factory.

It has received and is processing a further nine applications to import a variety of grain.

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The three shipments are understood to account for 3 per cent of the national

It comes as the Bureau of Meteorology forecast for a drier and warmer than average winter, but ABARES reports of spring brings favourable conditions, Australia's grain production could actually lift this year.

"The winter crop prospects at this stage of the season look better this year than last year so we're expecting the winter crop production will be up about 20 per cent compared to last year, that's still 10 per cent below the longer term average," ABARES chief analyst Peter Gooday said.

Livestock low

Faced with high fodder costs and poor weather forecasts, producers have been offloading cattle. ( ABC Rural: Clint Jasper )

The value of livestock exports will drop by 11 per cent, according to Mr Gooday.

"The cattle herd will finish this year at about 25 million head, which is the lowest level since the early 1990s," he said.

Drought has also driven demand for fodder for livestock, and the Agriculture Department reported a rise in the number of applications to import processed stockfeed.

Faced with the sky-high fodder costs and a poor outlook for rain, beef producers have been off loading cattle for months.

"Based on 45 years of ABS data there has never been two consecutive months of 58 per cent female kill as we have just had — the closest month and year has been June and July of 1998 when female ratio reached 55.9 per cent and 55.6 per cent," meat industry analyst Simon Quilty said.

Farmers are selling their breeding stock for premature slaughter, albeit at decent prices, and it is expected to take years for the national herd to recover.

Recent rains have lifted cattle farmer Tony Hegarty's outlook on the season, after a difficult few years. ( ABC Western Plains: Jessie Davies )

It comes after huge number of stock in north west Queensland lost in February's floods, while across the border in the Northern Territory, 500,000 cattle were essentially evacuated due to the on-going dry conditions there.

New South Wales beef producer Tony Hegarty has destocked his property at Cassilis, 360 kilometres north-west of Sydney, three times since his family purchased farm in the mid-1990s, most recently last year.

"It's very difficult to lock yourself into something where you see no end," Mr Hegarty said.

"No end to the feeding, no end to the costs, and the de-stocking at the moment has been a very good option."

After some promising rain and with green grass emerging across the property, he recently started running cattle and sheep on the 1000-hectare property again.

Poor rainfall and record high prices for lamb and wool are driving a similar sell off in sheep across the country.

Water woes

The price of irrigation water in the southern Murray-Darling Basin has sky-rocketed over the past season,.

The high price of water meant many rice and cotton farmers opted not to grow crops this year, leaving large areas of the NSW Riverina bare

ABARES reported Australia's cotton production more than halved between the 2017-18 season and the 2018-19 season, and it forecasts a further 40 per cent drop in the coming 2019-20 season.

High water prices are devouring the margins for dairy farmers, and sending many to the wall.

Dairy cow numbers have been dropping for years, and the cull price is at a three-year low.

Milk production, according to ABARES, for 2018-19 fell 8 per cent year on year.

ABARES expects the average farm gate milk price to rise slightly to 47.6 cents per litre — helped by the falling Australian dollar — but warns of little to no improvement in terms of fodder and water costs.

Producers of almonds, citrus and table grapes along the Murray River have also watched expensive water erode their margins.

Green shoots, dark clouds

Despite the impact of drought, a recent survey of farmers by agri-lender Rabobank shows farmer confidence is improving.

The bank's chief executive Peter Knoblanche said many farming regions had struggled through an incredibly dry autumn.

"There are a number of positives at play for the agriculture sector, including improvements in some commodity prices, such as dairy and wheat and a softening in the currency," Mr Knoblanche said.

Late rains across west and southern Australian in May has lifted farmer confidence, and in Victoria it was at levels not seen since late 2017.

"Compared to this time last year, seasonal conditions are looking pretty good," Mr Gooday said.

"But we're not expecting that to translate into an immediate increase in export values."

National Farmers Federation's chief executive Tony Mahar said there was some optimism emerging from the sector.

"They've got their fingers crossed, there's been some good rains in some areas around the country, but there are also some areas experiencing really severe conditions from dryness, drought, a lack of rain," Mr Mahar said.