WithTheGrain: Australia’s wheat prices above average on global scale

Author: | Date: 03 Jun 2018

 

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Australia needs to protect its international wheat markets according to a global benchmarking study highlighting the high sale prices achieved by Australian farmers.

Australian farms are achieving above average grain sale prices for wheat when compared to the world’s major grain producers but there remains a vital need to preserve Australia’s existing markets as our farmers face high costs of production.

Agrarian Management’s Ashley Herbert shared these messages from data collected in the global benchmarking network agri benchmark Cash Crop at the recent GRDC Farm Business Updates in the southern region.

The study highlighted Australia as having the highest costs of production of all regions at US$169 per tonne on average ranging from a low of US$124/t to US$215/t in comparison to Australia’s key competitor in Russia and the Ukraine having a cost base of US$120/t.

“One of the key messages from this study is that there is a real need to preserve or protect the existing markets and value of Australian wheat,” Mr Herbert says.

“Australian farms are unlikely to be able to compete with the low cost of production of the Russian and Ukraine production systems. These areas have fundamentally very low costs for inputs and labour which are not likely to change for some time. In addition, there is the very real prospect of significant productivity gains to be achieved within these regions in the medium term.”

The study analysed yields and yield variability, farm gate grain prices, crop income and production costs and enterprise margins across 41 ‘typical’ farms located in the  European Union (21), Canada (4), USA (1), Ukraine (2), Russia (1), Argentina (3), Uruguay (2) and Australia (7) across the five year period of 2011-2015.

Mr Herbert says it was clear Australia’s high cost of production, which measures higher than any other region in the study, presents challenges for the future.

“One common feature across all farms is the high cost of fertiliser and machinery,” he says.

“While there is some level of variation between the individual farms, these two items were consistently the highest cost items at the regional level.”

This is also the case when it comes to yield variability results where the EU region ranks as a champion performer, recording yields between 4.7 tonnes per hectare and 9.7t/ha.

This is particularly the case in the western European region where the highest yields in the group were recorded. Australian yields ranged between 1.6t/ha and 3.4t/ha and varied the most widely of all the regions.

Mr Herbert says he was initially surprised at the high level of variability Australian farmers are dealing with in addition to their high cost of production per tonne as can be seen in figure 1.

Figure 1: Average wheat yields and grain prices (US$/t farmgate) for the five years 2011 to 2015. Source: Thunen Institute of Farm Economics, agri benchmark results database.
Figure 1: Average wheat yields and grain prices (US$/t farmgate) for the five years 2011 to 2015. Source: Thunen Institute of Farm Economics, agri benchmark results database.

“While maintaining a continual focus on cost control and yield improvement remains a priority, the main message for the broader industry is that the high value grain price needs to be preserved to maintain competitive profitability, particularly for the lower yielding producers,” he says.

“‘Typical’ Australian farms with medium to low yields are unlikely to be sufficiently profitable at the average wheat price for the data set.”

Despite higher production costs, Australian farms recorded a consistently higher farmgate price of US$242 per tonne net of freight to end point, including all costs. This can be seen in figure 2 as being significantly higher than European farms at US$235/t and North American farms US$225/t.

Figure 2: Average wheat income and costs per tonne (US$) of production 2009–13. Source: Thunen Institute of Farm Economics, agri benchmark results database.
Figure 2: Average wheat income and costs per tonne (US$) of production 2009–13. Source: Thunen Institute of Farm Economics, agri benchmark results database.

Mr Herbert says Australia’s standing as a quality supplier is its key selling point in a market where it is up against lower cost of production systems around the world.

He says Australia’s value achieved in high grain price sales is vital for farmer profitability, but warns there may not be much room for increased selling prices in the future.

“Australian wheat is highly valued and, on average, Australian wheat is accessing higher value markets and is achieving some of the best prices in the world,” he says.

“Therefore, expectations of achieving better pricing relative to the general market in the future are probably unreasonable.”

GRDC research code: AAM00001

More information

Ashley Herbert, 08 9964 5191, ashley@agrarian.com.au

Useful resources

Agri benchmark cash crop