Margin control critical for crops

Close crop: Analysts, including Rabobank’s Cheryl Kalisch Gordon, say grain growers need to consider the high likelihood of input costs continuing to increase.

Keeping track of margins and controlling input costs will be vital for Australian farmers preparing for winter crop planting, say analysts closely monitoring the global market.

Rabobank senior commodity analyst Cheryl Kalisch Gordon said while higher commodity prices were a boon for Australian farmers, record input prices meant grain growers would need to have a strong focus on margin control for the 2022-23 season.

“Our analysis shows that the ‘returns to key production inputs’ (ratios) remain positive but have fallen, even though output prices have also increased,” Dr Kalisch Gordon said.

“Returns to urea application in wheat production, for example, have fallen from nearly 10:1 in 2019 to 2.5:1 at current prices.”

Greater per hectare costs of production also increased business risk for the season ahead, Dr Kalisch Gordon said.

She said growers, “first and foremost”, were thinking about efficiencies within their cropping businesses and how they used their nitrogen fertiliser to ensure they received “the best bang for the buck”.

“Farmers are also considering their crop choices and about planting less ‘fertiliser-hungry’ crops and are also thinking about which nutrients they can stand to reduce in their program.”

In doing so, she said it was critical for farmers to ensure that pricing assumptions for both inputs and outputs reflected “how markets will move over the year ahead and the potential to be otherwise caught buying and selling on different markets in terms of timing”.

Dr Kalisch Gordon said even before the invasion of Ukraine, Australian grain growers were aware the outlook was for firm pricing of inputs and well-above-average pricing over the course of the coming year.

“Along with concerns about their capacity to secure supply, farmers were already weighing up changes to gross margins and procurement strategies that would limit exposure to cost increases but also ensure timely availability of supplies.”

Rabobank senior agriculture analyst Wes Lefroy said it was an unlikely scenario that urea prices would fall considerably for the winter crop applications, and he believed farmers should be budgeting for prices to be at least at current global levels if not even slightly higher through the second quarter of 2022.

“It is a fast-evolving situation and there is no better time for growers to be in contact with their local fertiliser suppliers and consultants to gain an understanding of how local suppliers view the situation,” he said.