Australia: costly inputs dent appeal of cash cropping in NSW

With widespread planting of Australia’s winter crop imminent, growers are grappling with the trade-off between expensive cropping inputs and the promise of strengthening grain and canola prices.

Russia’s invasion of Ukraine is driving both the input and output complexes.

It threatens to shrink the Northern Hemisphere crop by hampering Ukrainian production, and keep prices of urea at record highs as Russian supply is throttled domestically, and through sanctions.

Australia’s New South Wales growers with mixed-farming operations are tipped to opt for more paddocks of grazing at the expense of cash crops.

In stark contrast to the past two bumper seasons in most parts of NSW, high input prices means some growers appear unwilling to push yield potential to the limit this year.

In commentary released today, Rabobank senior agriculture commodity analyst Cheryl Kalisch Gordon said growers needed to have a strong focus on margin control for the 2022-23 season.

“Australian grain growers will need to keep doing the sums to make sure they are pricing according to an outlook that is for input higher prices, but for grain pricing to potentially soften, even though we expect that to still be to levels well above average,” Dr Kalisch Gordon said.

“Our analysis shows that the ‘returns to key production inputs’ (ratios) remain positive but have fallen, even though output prices have also increased.

“Returns to urea application in wheat production for example have fallen from nearly 10:1 in 2019 to 2.5:1 at current prices.”

In Australia’s high-yielding canola and wheat zones, crops can require up to 150-300 kilograms per hectare of urea for planting, and more during the growing season if rain boosts yield outlook.

As a ballpark figure, urea currently costs around $1600 per tonne delivered farm, more than double its price this time last year.

At Lake Cargelligo in south-central NSW, Summit Ag partner Emma Ayliffe said there was “a clear split” between growers this year on their approach to cropping expenditure.

“The keen croppers are going to soil test and bite the bullet…and we’re seeing more soil testing this year than ever as people try to understand exactly what the crop needs.”

“Then we’ve got the guys that will spend same amount of money on fertiliser as they always do, and that means they’ll put less crop in and increase stock numbers.

Ms Ayliffe said the committed continuous croppers and the more flexible mixed farmers were all in the midst of doing close analysis based on the expense of inputs.

The wider region is a big producer of wheat, barley and canola, and Ms Ayliffe said despite the promise of high prices for grain at harvest in 2022, the risk of an unattractive gross margin is real, even for the agronomically ideal wheat sown into canola stubble.

“If we get a typical hot spring, or if we get a tight finish, we’ll make $50 a hectare; that is all.

“There’s that curve of diminishing returns, and they’re thinking: ‘We might be better off shooting for a lower yield, and putting on less fertiliser’.”

Ms Ayliffe said canola will represent the best return on investment, if this season delivers average rainfall.

However, canola generally needs more units per hectare of nitrogen, and sulphur, than wheat.

“The other crop that works out really nicely on paper is albus lupins.

“You don’t have to put any starter fertiliser in, and we’re seeing a swing to a few more albus lupins.”

For many in NSW, harvest 2021 was wet and drawn out, which has been great for building a sub-soil moisture profile ahead of this year’s winter crop.

The rain has also made weeds hard to control.

“If you’re a grazing animal, paddocks look pretty good out there; if you’re trying to spray, things are difficult because of the rain.”

Ms Ayliffe said glyphosate at around $12 per litre and diesel at $2/L are both weighing into the real expenses of cropping this year, which are being offset partially by strengthening price outlooks for grain and canola.

“It’s just your attitude towards risk, and some are more willing than others to take it on.

“They try to buffer risk by forward selling, but that can backfire and be pretty painful.

Ms Ayliffe said the past four years in her home district have comprised two years of drought, one average season and one bumper season.

“You can play the game of locking in price, but that has the risk of frost, or no rain.”

At Nyngan, in north-central NSW, Elders agronomist Wayne Judge said some growers are planning to cut back the amount of area they sow to cash crops.

“Mixed farmers will do a bit more with grazing varieties, like brassicas and mixed herbage, and they might trade a few more sheep,” Mr Judge said.

“With your cereal-type farmer, a few might cut back on area.”

While canola’s cash price is expected to hold up for the rest of the year, it also has the biggest appetite for nitrogen out of the most popular winter crops.

“With the price of fertiliser the way it is, and urea at $1600 or so a tonne, if you can get it, a few canola blokes will convert back to wheat or barley.”

He said growers were, however, likely to stick to their broadleaf-grass rotation, but faba beans and mustard could replace some canola as cheaper alternatives.

At Parkes in central NSW, PY Agronomy principal Peter Yelland said a minor shift to pulses was expected in reaction to high fertiliser prices.

However, the region’s distance from ports which export pulses in bulk went against a large-scale swing.

“There’s a little bit of trend to the pulses, but last season’s have been hard to sell because containers have been such a problem,” Mr Yelland said.

He said higher commodity prices were the sweetener to ballooning input costs, which he said were “basically double” what they were this time last year.

Based on demand from MSM Milling’s crushing plant at Manildra, the central slopes near Parkes are a major producer of canola.

Mr Yelland said difficulty in sourcing preferred varieties means cheaper open-pollinated ones with lower yield prospects were likely to increase as a proportion of the crop this year.

“It’s hard to get canola seed for preferred varieties, and we’re only three weeks away from planting.”

Due to supply-chain issues, Mr Yelland said ag resellers were uncertain about when some product will be available.

On top of the usual uncertainty about when the top-up rain for planting would fall, Mr Yelland said growers had a raft of decisions to make in coming weeks.

“People have to have Plan A, Plan B and Plan C, and finances will dictate the final outcome.

“The strain on cash flow will be at never-before levels.”

Mr Yelland said lower-rainfall areas were likely to fallow a lot of their country if the break was late, patchy or both, and sheep numbers could well swell in coming months.

“If it doesn’t rain in April, it’ll be interesting to see what happen then.”

“There’s certainly a trend for those with livestock to increase numbers, even the capital outlay is astronomical on sheep and cattle.”

Mr Yelland said interest in growing pulses as a green or brown manure crop was also high for some producers keen to fix nitrogen in their soil naturally.

“That could be vetch, fabas, or field peas, and winter-active canola is already going in because of its value for grazing.”

GRAIN Central

Tags: New South Wales, Australia, winter crop, Ukraine, Russia, grain, canola, prices, Production, wheat, Fertiliser, urea