A STRONG focus on margin control is vital for grain growers in 2022/23 according to industry analysts, with record input prices weighed against high commodity prices for the upcoming season.
Rabobank senior commodity analyst Cheryl Kalisch Gordon said Australian grain growers would need to keep doing the sums to make sure they are pricing according to an outlook that is for input higher prices, but for grain pricing to potentially soften.
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"Our analysis shows that the 'returns to key production inputs' remain positive but have fallen, even though output prices have also increased," she 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 according to Dr Kalisch Gordon, who said growers were thinking about efficiencies within their cropping businesses and how they used nitrogen fertiliser to ensure they received the best bang for 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," she said.
Dr Kalisch Gordon said it was critical for farmers to ensure pricing assumptions for both inputs and outputs reflected how markets would move over the year ahead and the potential to be otherwise caught buying and selling on different markets in terms of timing.
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NAB senior agribusiness economist Phin Ziebell said Russia's invasion of Ukraine had sent shockwaves through agricultural commodity markets across the globe.
"Grains, fertiliser and oil prices have all seen substantial increases as well as volatility as a result of the invasion, with considerable uncertainty over production at risk in Ukraine," he said.
"While western sanctions do not extend to Russian agricultural products, the old commodity trading routes of the Cold War are being re-established.
"Looking at farm inputs, fertiliser has seen a sustained uplift in price since the onset of the COVID-19 pandemic and the war in Ukraine has only exacerbated the challenges.
"NAB's fertiliser index was up 40.5 per cent on a year-on-year basis in February and 119pc compared to the same time in 2020 - meanwhile, diesel is now above $2.20 per litre in some areas.
"The Australian Dollar has risen to the mid-US70c range, as higher commodity prices muscle out risk-off effects. NAB sees the currency reaching around US77c at the end of the year.
"Inflation is a rising concern, although it is yet to hit Australia to the same extent as some other countries - we now expect the Reserve Bank of Australia to start raising the cash rate in August this year."
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 according to Dr Kalisch Gordon.
"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," she said.
Rabobank senior agriculture analyst Wes Lefroy said it was an unlikely scenario urea prices would fall considerably for the winter crop applications, and believed farmers should budget for prices to stay at current global levels if not move slightly higher through the second quarter of 2022.
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Despite challenges, Mr Lefroy said it was really remarkable how resilient Australian fertiliser suppliers had been over the last 12 months.
"With COVID, port shut-downs, Chinese restrictions on exports, supply chain issues and the high cost of freight, Australia actually imported a record amount of Mono-Ammonium Phosphate (MAP) and urea," he said.
"This resilience will give growers some comfort in a difficult global situation.
"These high urea prices and elevated supply risks may impact farmers plans for the initial application for the winter crop and possibly even make top-up applications challenging in this pricing environment.
"It's important to note that procurement times are still long, so it may take up to three months for prices to actually flow through.
"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."
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