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Wednesday, August 03, 2016

Am I getting paid the same as my old man?

By Andrew Whitelaw  |  Source: CME, ICE, RBA

Key points

  • Growers today aren’t getting paid the same as your old man for wheat and canola, you are actually getting less in real terms.
  • In nominal terms canola has ranged from $251-$821, and wheat $57-388.
  • On a real value basis canola has ranged from $368-1749, and wheat $177-1071

2016-08-03 Grain Fig 1

2016-08-03 Grain Fig 2

The average age of an Australian farmer is 53 years old. In this analysis we look at prices from the perspective of the current grain grower who could ask “am I getting paid the same for my wheat and canola as my old man?”.

It has been well reported that cattle prices are at record high levels, and last week we produced an article examining the “Long term real beef price”. This article revealed that the price of cattle had been much higher in the past when adjusted for inflation. It is therefore worthwhile examining grain prices in order to ascertain where we sit when long term prices are adjusted for inflation.

The nominal value is an unadjusted price and does not take into account inflation; whereas the real value is obtained by adjusting the nominal rate to account for inflation. The use of a real rate gives a truer picture of prices over a long period of time.

In figure 1, we have plotted the nominal and real value of wheat from 1973 to the present day. In this example we have taken the Chicago spot futures price and converted into A$/mt. These charts do not include a basis value, as we do not have basis levels going back to the 70’s & 80’s, however this still gives a strong indication of the market.

In nominal terms the price of wheat ranged from $57 to 388. However, the real price of wheat ranged from $177 to 1071. It is quite evident that real prices have been in decline and are currently close to their lowest levels since the early 70’s.

We have also included a chart of canola (figure 2), using the same methodology as figure 1. In nominal terms canola pricing has ranged from $251 to $821 between 1980 and the present day. In real terms, canola pricing is sitting at low levels in real terms, especially compared to the first half of the 80’s.

It is quite evident than both canola and wheat in real terms have declined in value over the past 35-45 years, and in reality you are receiving less than your “old man” for wheat and canola. 

What does this mean?

This analysis examines both wheat and canola over a long period of time, and it doesn’t paint a particularly rosy picture.

It is quite clear that in real value, wheat is close to the bottom end of the range, however during this time period there have been productivity gains which make up for some of this deterioration in real value. 

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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