Australian crop margins remain under pressure, but yields provide some relief

Australian crop margins remain under pressure heading into 2027, although strong yields across southern and western Australia are providing some relief, Rabobank says in a recently-released global report.

In its Field Crop Margin Outlook 2027, the agribusiness bank’s RaboResearch division says a global recovery in crop margins is expected to be “delayed and uneven” through 2027, with ample world supplies set to limit sustained price gains for grains and oilseeds, while fertiliser and crop protection costs are forecast to rise again.

“This combination leaves limited scope for broad-based improvements in profitability,” the report says.

RaboResearch notes margin “outcomes will diverge by crop and region”.

Australia

For Australian crop margins, the report says, the 2027 outlook remains challenging. Elevated fertiliser, diesel and freight costs are expected to continue to keep margins compressed, while El Niño could weaken seasonal prospects in eastern Australia.

However, favourable conditions across much of southern and western Australia should partly offset margin pressure.

Report co-author, RaboResearch agriculture analyst Oskar Mitchell said strong yield prospects for crops in Victoria and South Australia – together with above-average production in Western Australia – should spread elevated variable costs over larger volumes.

RaboResearch agriculture analyst Oskar Mitchell 

However, abundant local supply may weigh on farmgate prices and limit the margin benefit of higher yields, Mr Mitchell noted.

“In Queensland and northern New South Wales, below-average rainfall and weaker yield prospects leave margins more exposed to high input costs and may influence next season’s crop mix,” he said.

Mr Mitchell said Australian crop gross margins had entered 2026 “below historical levels”, with commodity prices weighed down by high global grain production, while input costs were lifted by geopolitical disruptions.

“Disruptions in the Strait of Hormuz, the Red Sea and the Black Sea had coincided with Australia’s peak farm input procurement and early winter sowing, increasing growers’ concerns over input affordability and availability,” he said.

Faced with higher costs and working capital needs, the report said, this had seen some growers reduce fertiliser application rates and shift planted area from wheat to less input-intensive crops.

Canola area however remained broadly stable nationally, despite the crop’s higher investment requirement and production risk, RaboResarch said, supported by favourable subsoil moisture in some regions.

This lower input use reduced upfront financial exposure, Mr Mitchell said, “but may constrain yields where season conditions do not compensate for reduced crop investment”.

For the coming year, Mr Mitchell said, some growers have brought forward fertiliser purchases and expanded on-farm diesel storage to reduce supply risk, although both these measures increased working capital requirements.

Global outlook

Across the globe, the report says the “recovery path” for crop margins will depend on multiple factors, including weather, geopolitics and crop fundamentals.

El Niño, which is expected to continue into the first half of 2027, increases production uncertainty.

“Meanwhile, Middle East tensions keep fertiliser markets firm and abundant global agri commodity supplies mean disruptions are more likely to trigger short-lived price spikes than a sustained rally,” RaboResearch said.

The report says the US remains the most vulnerable major market when it comes to crop margins, with corn margins near breakeven on an operating basis and negative on a full-cost basis. European crop margins could recover from their 2026 trough, it says, if yields normalise.

Meanwhile, Brazil retains comparatively healthy operating margins for soy and corn, and Argentina’s soybean margins should improve, although its corn margins remain exposed to higher fertiliser costs and taxation.

RaboResearch Disclaimer: Please refer to Australian RaboResearch disclaimer here  

Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 125 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 operates in 35 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 87 branches throughout Australia and New Zealand.