Who would have foreseen the unprecedented Canola prices when we started planning for 2021? But then Canada experienced an unprecedented drought with the result that Canola yields plummeted placing significant upward pressure on prices. Recent domestic weather patterns mean APW Wheat is also rallying hard and feed wheat prices are maintaining.
For those that have been able to get through the season with crops intact and strong yield results, the income per hectare will be the best results that we have seen over the past decade. Even with average yields the strong commodity prices will see above average income.
|For farms that went early with fertiliser and chemical purchases for the 2021 season, they have ended up ahead of the curve. As 2021 progressed we saw the steady increase in fertiliser and chemical costs. Glyphosate current price at $14/L and there are challenges landing on a price for fertiliser for 2022 season.|
Prices are indicated above $1,200 per tonne for MAP and Urea. So, looking forward to next year, unless there is a sudden and dramatic correction in fertiliser prices, in line with the 2008 experience, we expect that input costs will be significantly higher for the 2022 crop.
For those who have committed to fertiliser contracts for next year, the prices are locked away. A lot of early buying was driven by availability and future price concerns. Others are taking a wait and see approach, willing to absorb the price closer to sowing with expectations that they will be able to source supply.
Figure 1 – Ratio of the price of Urea to the price of Soft Red Winter Wheat
Source – https://www.indexmundi.com/commodities/?commodity=urea&months=120¤cy=aud&commodity=soft-red-winter-wheat&indicator=price-ratio
The strong financial results from 2021 will provide the cash in the bank that will be needed to fund cropping costs next year. The challenge for 2022 will be if we get caught on the turnaround, high input prices in the early half of the year accompanied by softening commodity prices for new crop.
Table 1. Gross margin for a 2 Tonne per hectare canola crop decile 5 to decile 10 price
|$550 per tonne (decile 5)||$900 per tonne (decile 10)|
The higher fertiliser and chemical costs can be absorbed when commodity prices are strong. At current spot price a 2 t/ha canola crop could produce $1,800 of income per hectare. If canola was still at a decile 5 price of $550 per tonne, then the high input costs would be taking a considerable bite off farm profits. Gross income of $480 per hectare to cover machinery costs and labour along with overheads would not leave much free cash to provide for re-investment, debt amortisation and family needs.
|Preparing a budget for 2022 will provide the clearest indication of what the risks to each farm business looks like going into the new year. It will be the year for planning, analysing, and executing to actively manage the financial risks through the year.|
If hope is not a good business plan, then 2022 is not the year to leave financial outcomes to luck or fate. ORM will be working closely with clients in the lead up to sowing, to manage cashflow and financial risks throughout the year.
2021 was certainly an extraordinary year, presenting many different challenges, but as an industry Agriculture is holding strong.
From the ORM team, best wishes to everyone for a safe and Happy Christmas and New year, we look forward to continuing to support farming business in the year ahead.