Cost of production huge concern for 2022

Gregor Heard
By Gregor Heard
Updated January 5 2022 - 5:14am, first published 4:00am
Australian farmers are concerned about soaring input costs ahead of the 2022 season.

IN SPITE of grain prices hovering at near record levels and many Australian grain growers having a big 2021 crop, the production sector is entering 2022 apprehensively.

Sky-rocketing input costs, including fuel, but more pressingly pesticides and fertiliser, have meant the cost of production is set to soar, ringing alarm bells among growers.

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"You've got the high input costs and then even if the high grain prices stay in play, it is high risk, high reward," said Grain Producers Australia chairman Barry Large.

"We've seen fuel go up about 20 per cent, that's something we don't like to see but we can absorb, but when you start to see what is happening in the fertiliser and pesticide space it gets a little scary," Mr Large said.

"We've seen urea prices probably close enough to treble, the compound phosphorus fertilisers have more than doubled since last year," he said.

"For my farm business fertiliser is easily the major input cost so it is a worry, especially when above-average crops last year have taken out a lot of nutrient."

Mr Large said that if grain prices held and there was certainty around the forecast for the season the cost may well be acceptable but he said the uncertainty meant farmers would be making some tough decisions in pre-season planning meetings in coming weeks.

"If we got another good year and the prices held, absolutely, the return on investment would be there, even at these elevated pricing levels, but if something goes wrong, whether that be a correction in prices or a poor season or even worse, both, then things would start to get ugly really quickly for a lot of growers."

Mr Large said the other major concern was supply.

"The supply chain issues are well documented, farmers are probably getting in and ordering earlier than they would due to the potential for delays."

In South Australia, Grain Producers South Australia director John Gladigau said there were a lot of nerves about soaring input costs.

"Through my part of the world in the SA Mallee it was a poor year in 2021, good grain prices helped, but farmers are far from cashed up," Mr Gladigau said.

"Having to make these decisions about big upfront purchases without any certainty about the season is difficult," he said.

"Furthermore, with the high costs of the fertiliser, the retailers are also liable for big costs of carry and the like and are less flexible in terms of the financial terms they will offer than when it is cheaper, so that is another factor.

"We're not sure whether this is the short-term spike in reaction to the northern hemisphere energy crisis or the new normal in terms of input costs, which would mean the higher grain prices would be necessary just to break even, but it something people are very nervous about."

Both Mr Large and Mr Gladigau said farmers were weighing up the opportunity to apply reduced rates of fertiliser.

"In my area, we've already been working with low input systems due to the run of droughts, but in other parts of SA, particularly where there is a good amount of pulse production creating organic nitrogen, certainly farmers will look to make savings if they can," Mr Gladigau said.

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"In WA, the only pulse crops is lupins so you don't have much natural N replacement, but I think people will be looking at their paddock history and seeing whether there is the opportunity maybe to lower rates just for this year," Mr Large said.

"There is no doubt people will change the goalposts, people in areas where the target yield is normally 5 tonnes a hectare may tweak their fertiliser budget to cater more for a 3t/ha scenario just to avoid some of that production risk," he said.

However, Mr Gladigau said farmers also did not want to minimise opportunities.

"You don't farm for a drought year and if things do come in favourably and if the northern hemisphere crops is poor then the last thing you want to do is have artificially capped your yield potential by not putting enough nutrients out," he said.

"It is a very difficult because we just don't know what is ahead."

Mr Large said many growers who had big seasons would probably buy their normal allocation of product even at the higher prices, rather than just paying it in tax, but said it was not sustainable.

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"You see the headlines from a big year like 2021 and it looks great, but even for those who did have a good year it really is eaten away when faced with a massive run up in the cost of production like we're confronted with here," he said.

"There would probably be a few out there who would be happy to sacrifice some of the grain prices gains we've seen if it meant input costs came back as the upfront risk would come back, but that's not the situation we're looking at."

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Gregor Heard

Gregor Heard

National Grains Industry Reporter

Gregor Heard is Fairfax Ag Media's national grains industry reporter, based in Horsham, Victoria. He has a wealth of knowledge surrounding the cropping sector through his ten years in the role. Prior to that he was with the Fairfax network as a reporter with Stock & Land. Some of the major issues he has reported on during his time with the company include the deregulation of the export wheat market, the introduction of genetically modified crops and the fight to protect growers better from grain trader insolvencies. Still involved with the family farm he is passionate about rural Australia and its people and hopes to use his role to act as an advocate for those involved in the grain sector. Away from work, he is a keen traveller, having spent his long service leave last year in Spain learning the language.

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