Despite big increases in the cost of fuel, fertiliser, labour and other inputs, the pain of rampant global inflation may not be really noticed by Australian farmers until next year, at least.
Bullish farm commodity prices and good seasonal conditions are quarantining many in the agribusiness sector from being punished by the intensity of inflationary cost pressures on a host of goods and services.
However, with inflation tipped to keep pushing up prices for energy, freight, crop protection inputs and farm living expenses well into 2023, or further, agribusiness should brace for for the crunch, warned National Australia Bank senior agribusiness economist, Phin Ziebell.
Although Australia had, so far, not felt the same level of inflationary heat experienced overseas, he said cost rises had moved from a relatively transitory phase a year ago to "quite pointy" in the past few months.
Inflation jumped almost six per cent in the past year, well above the Reserve Bank of Australia's two per cent to 3pc comfort range and the largest single-year rise since 2001.
It is running even hotter in the US, up more than 8pc in March and April, fuelled by 40pc petrol price rises, 80pc for fuel oil, and food jumping 9.4pc - the highest increase in 40 years.
Britain's annual inflation rate is worse again, at 9pc, while New Zealand hopes to contain its peak at 7pc for the June quarter.
"It's hard to know what will happen in Ukraine, or China, or how effective higher central bank interest rates will be in restraining global inflationary pressures, but I think people should plan on another 18 to 24 months of this," Mr Ziebell said.
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In the meantime, however, surging agricultural commodity prices and a generally good seasonal outlook should ensure most farmers, and the agribusinesses servicing them, would see higher returns comfortably absorbing their higher costs.
NAB's May Rural Commodities Index rose another two per cent in May to new national record territory around 210 points, with Queensland and NSW commodity performances nearer to 225.
Lower dollar helps
Export-friendly dips in the Australian exchange rate around the US70 cent mark (thanks to rising US interest rates) were aiding demand for our farm products, too.
"I don't foresee a lot of grain price downside even if more Black Sea crop is available, given Europe, North America, parts of Africa and India have all had tight growing seasons," Mr Ziebell said.
While good for Australia's 2022 prospects, continuing La Nina weather patterns could again be detrimental for the US, India and parts of South America.
"I'd expect global trading stocks to be relatively low for a while, and keep prices strong," he said.
The worry could come by this time next year
- Phin Ziebell, National Australia Bank
The risk was, however, if Australia's recent succession of big volume grain harvests, including 30 million-plus tonne wheat crops, suddenly shrivelled because of an inevitable bad season or two.
Grain and livestock producers would be hit with lower returns while still paying inflated operational costs.
Rising interest rates
Higher interest rates were also inevitable as the RBA followed other central bankers with rate increases designed to slow consumer demand and the price rise spiral.
"Things still look very good for Australian agriculture this year, but there's a higher level of uncertainty in the medium term," he said.
"The worry could come by this time next year.
"The mood may be very different, especially if rising input cost pressures and labour shortages are still happening and the global economy continues to weaken."
Continued worldwide energy cost rises, meant higher on-farm fuel cost stresses, particularly for grain growers and irrigators, plus higher freight, marketing and processing costs for their grain, fibre, milk, livestock and horticultural crops.
A lower dollar and high energy prices would keep fertiliser imports expensive, too, while supply chains, squeezed by fuel prices and logistics constraints at ports, particularly inChina, would continue complicating prices for machinery, spare parts, steel, and sundry other farm essentials.
Fert affordability dives
"Our fertiliser index was up another 12.5pc in April, or more than double levels of one year ago," Mr Ziebell said.
"The World Bank says global fertiliser affordability is at historically low levels, only surpassed in the 2007-2009 global financial crisis.
"While US diammonium phosphate (DAP) and urea prices dropped somewhat in recent weeks, we don't expect much downside this year."
He said oil values were highly volatile as markets weighed up the ongoing Russia-Ukraine crisis and lower investment against lockdowns in China and signs of slowing global growth.
Australia's average diesel price was 210c/litre last week.
Economic industry research group, IbisWorld, identified fuel as the biggest factor driving inflation here - up an average 35pc in the year to March.
Senior industry analyst, Victoria Baikie, noted regional consumers and businesses were much more reliant on road freight transport.
"Farmers also rely on trucks to transport agricultural produce to consumers and bring in important inputs, such as fertiliser," she said.
"However, farmers are less likely to fully pass on cost increases due to the supermarket giants' significant bargaining power, which can reduce farmgate prices."
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