For many farm owners, preparing annual budgets is a routine discipline at this time of year. But it’s a task that is often approached with a good deal of uncertainty. With so many variables to consider, cost budgeting can never be an exact science, but an awareness of market trends and pricing projections for fertilisers, chemicals and fuel can help reduce at least some of the guesswork involved.
Let’s start with fertiliser. Nitrogen prices have fallen slightly from last year, while phosphorus, potassium and the trace elements are roughly the same. With high nutrient removal from a big crop, cost per hectare is likely to rise in 2012.
As new chemistry has entered the market prices of key chemical products have receded from 2011 levels. Roundup, for instance, is currently available below $4/litre, while most of the post emergent appear static. Although WA chemical costs will be higher in 2012 due to summer weed control, over the long term prices are slowly moving down.
Substitute prices in corn for ethanol and biodiesel for canola are helping keep grain prices up. The diesel yield curve is neutral for 2012 so we expect prices to remain stable (even a significant spike in diesel wouldn’t be all bad, as this would result in a natural hedge back to grain prices).
Finally, labour costs. These are expected to rise in 2012 due to competition from the mining sector, where higher salaries continue to attract farm workers with skills that are transferable to the resources industry.
Sheep Numbers On The Rebound
Since 1990, when the wool reserve price was suspended, Australia has witnessed a sharp decline in sheep numbers as low wool prices and poor productivity saw farmers turn instead to cropping. The statistics tell their own story: between 1990 and 2011 the national flock fell from 174m to 74m.
Recently, though, price increases in both wool and sheep meat have triggered a re-adjustment in attitudes. With gross margins for sheep now higher than those for grain (in the medium rainfall regions of WA, margins for sheep are currently $230/ha against $140/ha for wheat), flock numbers have begun to bounce back.
When the drought broke in south eastern Australia in 2010, it prompted a six million sheep increase in a single year. Five million head were held back on farm while a further one million came from drought-affected WA. With both weather and pasture conditions positive for 2012, we expect sheep numbers to continue to rise this year, with the national flock projected to increase an additional three million to 77.2m head.
Wheat prices have been in a tight band since December. Stock-to-use ratios are high and 2012 looks set to produce another surplus. Weather concerns over winter kill in Russia, poor crop growing conditions in the Black Sea and limited snow cover should drive short term price spikes through the spring when the winter crop emerges.
Barley prices traditionally peak during harvest, when acquirer competition drives up values, especially for malt. The barley shipping stem will peak in March this year so old season barley may struggle to find a home soon.
With the new season shipping stem peaking in March, acquirers appear to have had their fill of the 2011 canola crop which has plateaued in recent weeks. In contrast, 2012 canola has increased $10/t over the last seven days.
Since December, beef prices have come under pressure in response to the growing strength of the Australian dollar versus the greenback. Supply fell in February – a result of east coast rains and increased restocker demand. Once supply returns to normal, prices are expected to continue easing.
Lack of rain in southern states is forcing more lamb onto the market; yardings are up 5% this week. With most growers carrying extra stock into summer following a gentle spring, supply is well up on last year.
Australian wool production reached its lowest level in 2010/11, falling heavily in the last six months of the year. With production also down among the world’s other major producers, supply is going to be a real concern through 2012. The EMI is currently 1243c/kg.
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