The only thing that has saved some wheat growers from this year’s low grain prices is the above-average yield they have achieved.
The volume of grain harvested in some regions was phenomenal and covered for the lowest grain prices since 2011. Unlike American growers – who are facing their lowest wheat prices seen since 2006 – Australian growers have had a harvest average price just above levels last seen in 2011 and 2009.
There’s not much in it though, and we are right at the bottom of the price range seen since 2007.
The big difference between 2016 and 2011 and 2009 is that in the two earlier years, we could have forward-sold wheat mid-year for more than $300 a tonne.
We were given no such opportunity in 2016. Anyone who has not had above average yields, or has had significant downgrading, will be finding the results of this year’s harvest tight. If we return to average yields for 2017 and prices stay within the lower end of the range since 2006, more growers will be feeling the pressure.
Apart from low prices, the other issue for Australia is we are a high-cost producer of wheat. Our per hectare costs might be low, but on a per tonne basis our cost structures are high. Part of that is the high incomes Australians earn, and the need for farmers to meet that same level to be able to operate in the same society as our city-based counterparts. Getting our grain to market, firstly within Australia and then once on a vessel heading to key Middle East and Asian markets, is also costly. Our internal freight costs, and storage and handling costs have to be world competitive if we are to survive in a global marketplace, while our distance to markets can put us at an extra disadvantage.
Yield is the answer in terms of lowering per tonne costs and being able to get an adequate income during periods of low prices. This is another area where Australia is being let down. Our yields are not keeping pace with our major competitors in North America, Europe and the Black Sea. We are less able to cope with lower prices than are growers from those major exporting regions. Australian farmers do not have access to crops with the same advances in yield potential that growers of soybeans and corn enjoy.
It’s a tough market for grain growers, and every opportunity for better pricing for the 2017-18 crop will have to be taken advantage of.
That means offloading old season grain on any uptick in the market, as well as making forward sales for this year’s crop at prices that will lock in a significant year on year price increase. The chances of being able to make sales at $300 per tonne look slim, but being able to sell 2017-18 wheat for $40 per tonne more than for the harvest just gone is a possibility.
