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Tuesday, August 08, 2017

The silver lining in a high A$

By Andrew Whitelaw  |  Source: World Bank, AIP

Key points

  • Urea pricing has fallen to A$242 on the black sea, close to the decade low of A$236
  • DAP pricing is currently A$445, offering the most competitive price since January.
  • Diesel pricing has dropped off by 12¢ from the high of the year.

2017-08-08 Inputs Fig 1

2017-08-08 Inputs Fig 2

2017-08-08 Inputs Fig 3

The A$ is considered an ever-present bane on the lives of farmers. As a net exporter of agricultural produce, the movement in our currency can impact on our competitiveness on a global scale. The Australian dollar has appreciated beyond most analysts expectations in the past month. It’s not all bad though, there is a silver lining.

The rise in the A$ has resulted in the fall in the wheat swap price, luckily concerns relating to local production have resulted in basis largely offsetting much of the rise in A$. Although we export most of our produce, as farmers we do to import much of our farm inputs. If you look around your farm there is very little which is produced locally, from our equipment to our diesel and fertilizer. Therefore, a higher A$, in theory should help with our inputs.

In figure 1, the black sea urea price is converted into A$, and plotted since the start of the decade. The black sea price is the global benchmark for urea, and the cost of transport and merchandising has to be added to this price, but is used as an indication of the general direction. As we can see the urea prices are currently close to the lows experienced back this time last year, and well below the average in this period. This is as a result of both falling urea prices, and increasing A$ improving our buying power.

The DAP price (US Gulf) is displayed in A$.  This follows the same methodology as figure 1, and requires additional pricing to bring to a local level. This year has seen steady falls in pricing, although not quite at the same level as the low in October 2013, it still represents good pricing.

At present the overall fertilizer market is oversupplied, and we are unlikely to see rapid changes in prices to the upside, however when purchase prices are attractive we need to be strategic\ with our purchasing.

Time flies by, and we are not far from harvest when we will start to burn through diesel quicker than David Boon drinking VB’s on a test cricket tour. The best time to purchase fuel in this decade was in January last year, and forward purchased and stored fuel would have been great cost saving measures. In the past year the high has been 119¢/l, but recent has fallen to 107¢/l.

What does this mean?

In any industry it is important to look at both the price received for the end product, and the cost of the inputs required to produce a unit.

It is therefore important for producers to keep track of input costs, in order to identify good buying opportunities. When prices are low, it may be worthwhile talking to suppliers about forward contracts, or buying in bulk in advance of when you actually require the input.

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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