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Thursday, January 19, 2017

Input update: Fuel and Fertilizer

By Andrew Whitelaw  |  Source: Worldbank, ACA, FAO

Key points

  • The August-November average diesel price at port was $106/l versus $116 for the past month.
  • There is a global glut of fertilizers on the market which is unlikely to rectify anytime soon. 

2017-01-19 Grain Fig 1

2017-01-19 Grain Fig 2

2017-01-19 Grain Fig 3

The harvest is all but done, now is the time to start looking towards next year. There will be changes in planting, a little more of this and a little less of that. However, regardless of what you plant you will be burning diesel and spreading fertilizer. In this report, we look at these two important inputs.

In the last two months’ millions of litres of diesel will have been burnt across the grain growing regions of Australia, and in reality, we are only a few months away from starting all over again with seeding and the diesel bills will start flowing in. In figure 1, the average port diesel price for Australia is displayed since the start of 2015. Assuming that most farmers purchased their fuel well in advance of harvest as recommended by Mecardo early in 2016, the input costs for fuel for the 2016/17 harvest will be considerably lower than current levels.

The average diesel price for Aug/Nov was A$106/l, versus A$116/l for the past month. Although diesel is creeping back up diesel prices have spent a lot of the last ten years above current levels (figure 2). In late December OPEC agreed for the first time in eight years to cut oil production, which alongside improving economic conditions has led to an increase in crude oil prices and therefore diesel. The market for oil is hard to predict and in coming months it is important to keep a close eye on the market with a view to locking in fuel for the coming season either through swaps or fuel contracts.

The picture is rosier when it comes to fertilizer. In figure 3, we can see that both DAP and Urea are both pricing at good levels since the start of the decade. Although Urea has seen an uptick in past months, the outlook for fertilizer supply still points to a surplus for at least the next two to three years. The supply issue aside the real risk is a fall in the A$ increasing the cost of imports. 

What does this mean?

The fertilizer market remains at low levels; however, the market outlook remains bearish to neutral reducing the impetus to go out straight away and stock up. 

In terms of fuel the outlook is less certain, and looking in a proportion of fuel requirements in advance could be an advisable risk management strategy.  

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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