Oil glut helps farm fuel costs slide

A global oil and gas glut has sent diesel prices sliding about 30 per cent in the past 18 months, also contributing significantly to a slump in global fertiliser prices, particularly nitrogen (urea) now down by almost US$120 a tonne in a year to $US200/t ($282).

Farm chemical production and distribution costs are also expected to be relatively subdued thanks to the current lull in energy prices.

Last week Australian wholesale diesel prices were averaging 88.3 cents a litre - almost on par with values back in 2003, according to the Australian Institute of Petroleum.

Unleaded petrol's national average retail price fell to $1.10/L last month having peaked above $1.40 midyear after starting 2015 below $1.10/L.

But even before dated Brent crude oil's global benchmark value began slipping from around $US130 a barrel in 2012, the true cost of farm fuel was shrinking noticeably in proportion to Australia's rising agriculture sector revenue and other farm costs.

The nominal value of our agricultural output jumped from about $33 billion in 1999-2000 to $53b last financial year, while spending on farm fuel products only crept up from about $1.5b to $2b in the same period.

That compares with far more notable rises in other annual farm costs such as repairs and maintenance - up from about $2b at the turn of the century to almost $5b in 2014-15 according to calculations by the Australian Farm Institute (AFI).

Increased farmer spending on stockfeed inputs and cropping seed is also now nudging $5b annually, although it briefly peaked above $6b at the height of the drought in 2007-08.

Marketing expenditure jumped about $2b during the past 16 years to more than $4b.

AFI executive director Mick Keogh said farmers were still paying considerable fuel bills, but the overall impact of fuel, grease and oil on their gross margins had almost flat lined at around 8pc of their total cash costs since the early 1990s.

"The swing to minimum till farming, and today's more efficient machinery, has certainly helped reduce fuel consumption and costs, but although diesel prices are higher than we'd recall two or three decades ago, they're not really the significant cost as they once were," Mr Keogh said.

"Diesel and the exchange rate used to be considered the most influential factors on Australian farm profitability - now the exchange rate is far more significant.

"Other overheads like marketing costs and farm advisory services becoming much more relevant."

According to figures from the AFI and the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) average fuel consumption costs on mixed enterprise broadacre farms were $26,800 last financial year, compared with nominal values of $15,000 in the early 1990s and $21,000 by 1999-2000.

Cropping-only enterprises forked out an average $70,000 on fuel last financial year, compared with their total farm costs of $775,000 and revenue of $1.1m.

That was almost double the nominal value of their fuel bills ($37,000) back in 2000 when total costs were $334,000 and revenue $575,000.

Caltex Australia spokesman Sam Collyer said the fall in farm diesel and petrol prices would have been even more pronounced if the dollar's devaluation in the past two years had not pushed up fuel import expenses.

While lower crude oil costs had dramatically cut diesel prices in 2015, he said an overall rising demand for diesel in Asia in the past decade had created more fluctuations in the market and a tendency for diesel to shift quite independently of petrol values.

Seasonal conditions in the northern hemisphere, particularly in winter, also increased market volatility.