It’s not all is doom and gloom as we prepare for 2009. Although farmers are disappointed that the run of extremely high grain prices hasn’t continued, prices are still on the higher end of the scale historically.
And pressure from high fertiliser prices and the high costs of other farming inputs are starting to ease.
This should help lower the cost of production.
Already, signs are that there that it will be a smaller world crop planted in 2009, a trend likely to be repeated in Australia, which should help take some of the heat off downwards price pressures.
In 2008, every spare acre was put into crop, whether it was pulled out of a planned fallow phase or paddocks marked down for livestock.
There was also a spate of virgin cropping country, primarily in high rainfall zones, such as south-west WA, Victoria’s Western District and the NSW southern slopes, that was opened up for grain production for the first time, due to the extremely good returns.
It’s unlikely that farmers will be as keen to go all out on putting a crop in, given the lower grains market at the moment.
Plantings are likely to fall accordingly.
Marketing-wise, there may well be a swing back towards more normal risk management strategies.
Forward marketing the crop was on the nose in 2007, as many farmers were caught short with failed crops, leaving them forced to wash out their contracts at heavy losses, as the market heated up throughout the season.
This year, many chose not to do any forward marketing – after the losses of the year before – and were again caught out, as they failed to take advantage of high prices on offer early in the season.
Most have preferred to store grain on-farm and it will be interesting to see how this goes.
Traditionally, there has been a premium on grain prices through the autumn compared to those at harvest time.
That should make storing grain attractive.
But with the large amount of grain either stored on-farm or warehoused this season, it is no certainty that prices will again trend upwards through the autumn feed drought.
At the end of 2007, many analysts were ushering in a new era in the grain industry, boldly proclaiming a paradigm shift, where $300 a tonne plus for cereals became the norm, rather than the exception.
It was heady stuff - and the message caught on with farmers right across the globe, with a record international plant for 2008.
How things have changed - except for some niche grain markets, such as durum, where there is still a shortage.
Grain buyers are no longer willing to take the risk of accumulating large parcels of grain – without having lined up a another purchaser further up the supply chain – for a few reasons.
Firstly, the high cost of credit remains the big issue - with the risk factor meaning lenders are becoming increasingly choosy about to whom they lend.
Secondly, the extreme price volatility has meant buyers are unwilling to have large stocks on the books, just in case prices come crashing down and they are left long on expensive grain.
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