Farm input prices will remain steady and could potentially drop further in 2009, Rabobank analyst Adam Tomlinson told a series of farmer presentations across South Australia last week.
"There are a number of forces maintaining the sideways movement of input prices, one of the biggest is that the cost of production has dropped, mainly due to lower prices for oil natural gas and phosphate rock," Mr Tomlinson said.
"Also a reduction in consumer spending as a result of the global economic crisis has adversely impacted most agricultural commodity prices and with a general recovery in world grain stocks there has been less incentive to increase production and the use of fertilisers has contracted in some regions.
"International urea and DAP prices have fallen by up to ten per cent since early March, with global production adequate for the current demand outlook."
A combination of stronger US dollar, lower raw material prices, smaller growth in global demand, reduced freight costs and less government intervention is expected to maintain downward pressure on fertiliser prices in 2009.
"China, a large global producer of fertiliser, has opted to reduce taxes on nitrogen and phosphate fertiliser exports in the Chinese low season, aimed to help fertiliser producers in low demand periods whilst keeping capacity available for their farmers in the major application time frame," said Mr Tomlinson.
In China the low seasons for urea are: January, July, August and November 16 to December 31. The low seasons for Chinese-manufactured phosphate fertilisers are: January, June, July, November and December.
"On the other side of the coin, there are some key factors keeping international prices from falling further such as the added investment costs for new supply capacity and some buoyant prices in major grains and oilseeds such as wheat, which remains above 500 US cents a bushel," Mr Tomlinson said.
"Although the major agricultural commodity prices have dropped since 2008, many are still well above long term averages and this will probably prevent fertiliser prices falling below pre-2006 levels."
Mr Tomlinson told those gathered at the presentations that with very little movement in commodity prices expected, it would take a major global event to cause a significant rise in farm input prices.
"Should there be a dramatic increase in soft commodities and resources such as oil, gas and phosphate rock, or a large drop in the Australian dollar, then prices could potentially rise again, however it appears unlikely," he said.
In 2009 it is expected overall fertiliser costs will be similar to 2007 and energy/chemical costs will be similar to 2005.
Rabobank Australia is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 110 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and has a AAA credit rating from Moody’s and Standard & Poor's. Rabobank operates in 43 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1600 offices and branches. Rabobank Australia is one of the country's leading rural lenders and a significant provider of business and corporate banking and financial services to the Australian food and agribusiness sector. The bank has 80 branches throughout Australasia.