Dollar fall hits fertliser costs
The weakening Australian dollar continues to weigh on fertiliser costs for farmers who are yet to buy for the coming season.
Commonwealth Bank agriculture strategist Tobin Gorey said the weakening of the dollar since August 2014 meant Australian farmers could now be paying up to 20 per cent more for DAP.
The exact change though would depend on the type of fertiliser, supplier and existing contract agreements.
Summit Fertiliser executive manager of marketing and sales Frank Ripper said any further dollar weakness would continue to put upward pressure on local prices.
However, offering some reprieve are predictions that the global price for many types of fertiliser will stabilise and even soften after a spike earlier in the year which has driven up international prices. DAP is currently trading at about US$20 a tonne higher than in December.
Mr Ripper said after the steep increases, indications were global prices for urea and potash would soften, while prices for ammonium phosphate would stabilise in US dollar terms.
Rabobank senior analyst Michael Harvey said global fertiliser prices had been even higher earlier in the year, but had fallen back in recent months because of slowing global demand.
"With grain prices as they are, farmers are generally being a bit more conservative about application rates," he said.
"Demand is relatively subdued compared to recent years when we had very good grain prices.
"But the biggest driver is probably the supply side of the equation. Inventories are accumulating in China, so we have the combination of sluggish demand and plenty of supply.
"Phosphates are in a similar situation."
Mr Harvey said in terms of global prices, he did not see further significant downside pressure from current levels, nor were prices set to increase.
"It's really a currency play at the moment. If the Australian dollar drops further, that will add further upward pressure on landed prices," he said.
CSBP manager fertiliser sales and marketing Ben Sudlow said also providing a small buffer was the easing of US dollar shipping freight rates in recent months (which may be partially due to the decline in the oil price) although the extent of these reductions has been offset by the fall in the dollar. Furthermore, the overall effect of freight on fertiliser prices is limited because this constitutes significantly less than 10 per cent of the total cost of the fertiliser.
Mr Ripper said because many WA farmers had made purchases and locked in prices late last year, they had avoided the impact of more recent weakness in the dollar.
WAFarmers grains section president and York farmer Duncan Young said while there still would be an impact, it would not be as severe as if grain growers were purchasing the full amount and locking in prices now.
"However, because growers don't lock in their whole program at once there would be some increases, but it does vary from farmer to farmer," he said.
Mr Young said it was likely amid higher pricing that growers would do more soil testing, to see whether they could reduce their applications or target the higher-yielding areas in certain parts of the farm.
East Wickepin farmer Tim Heffernan managed to save about $100 a tonne on DAP for the coming season by purchasing last July, several months earlier than usual.
Mr Heffernan, who farms with wife Libby, is a close follower of international currency markets and correctly forecasted the Australian dollar, then trading at around 85-87 cents, would fall.
His early purchase of some 60 tonnes of fertiliser meant he saved about $6000, compared to current pricing levels.
"I only have one superbunker so I could only buy one lot. I filled it up as much as I could with DAP," he said.
He said he would make a call on urea once his crop was in the ground.
Mr Heffernan said he generally cropped up to 1000ha annually, though this year planned to scale that back to about 800ha in favour of more sheep, due to expected weaker grain prices.
The cropping program consists of about 25 per cent each of wheat and barley, 30 per cent lupins and 20 per cent oats.
Although the focus for now is on the next seeding, which typically starts in his area about May 10, Mr Heffernan said he would review his cash flow again this July. .
"I believe the dollar has another 10 per cent, possibly even 20 per cent further to fall yet, so if I can buy fertiliser early again this year, it could lead to some further savings," he said.
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