By Andrew Whitelaw | Source: World Bank, AAA
In terms of inputs fuel and fertilizers are some of the biggest costs a cropping operation will face. In this report we will provide an update on fuel and fertilizers markets and what the trends are for pricing.
In June global fertilizer prices for DAP and Urea fell slightly month on month. When converted to A$ Urea fell 6.49% and DAP 2.93%. In figure 1, we can see that Urea prices in AUD are sitting at their lowest levels since 2010, and DAP since mid-2013.
It has to be noted that the pricing used for these updates are international prices, and that they may not be an exact match for what pricing is available locally. However, they give an indication of the market direction. The fertilizer market will perform much like the grain market with a basis between local and international values.
As outlined in our recent analysis it is clear that the grain markets around the world are trading at low levels compared to the last couple of years. A continued low price environment will impact upon farm margins, and will likely lead to reassessments of expenses. If we see a reduction in utilization of fertilizers this could place further downward pressure on fertilizer prices due to reduced demand.
In figure 2, we can see the that on average across Australia the petrol pump price in June had rose to 124.3c/l after having averaged around 115.4c/ltr for the previous five months. When we look at individual states it is interesting to note that in June the least affected state was South Australia which only saw a 1% increase in pump prices.
Although farm equipment uses diesel, we use petrol in this analysis as it has the most reliable dataset for all of Australia and is a relevant proxy for diesel.
In the early part of the year we saw crude oil prices fall dramatically (figure 3), however we have seen a recovery which has resulted in petrol prices rising in June. When we look at current petrol prices they are still attractive compared to 2011- 2014, when they were considerably higher.
Urea and Dap are currently sitting at attractive levels (on a global basis) and it is worthwhile discussing with your supplier whether there are opportunities to forward purchase your future requirements.
There are some opportunities to use derivatives, but unfortunately liquidity is likely to be an issue on these markets.
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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