Home > Market-savvy approach needed for farmers to manage fertiliser price volatility, says Rabobank

Market-savvy approach needed for farmers to manage fertiliser price volatility, says Rabobank

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article image Dirk Jan Kennes

A visiting global strategist on farm inputs at leading food and agribusiness banking specialist Rabobank  believes that farmers will need to become more market-savvy in order to minimise their risk exposure to fertiliser trade volatility.  

Dirk Jan Kennes, the global strategist of the Food and Agribusiness Research and Advisory (FAR) farm inputs team in Rabobank's global head office in Utrecht, The Netherlands is currently touring regional Australia to speak with farmers about the changing dynamics in the farm input supply chain.  

Given the changing fertiliser market dynamics in recent years, Mr Kennes observes that there is more volatility in pricing, transforming the decision making of buying and selling across the various links in the supply chain.  

This has led to shorter physical sale cycles, requiring more volumes to be processed in a shorter period of time, which often causes supply chain bottlenecks, placing immense pressure on pricing due to the logistical challenges of moving fertiliser goods from the manufacturers to the farmgate.    

A recent example of the ‘pressure squeeze’ on logistics and pricing is the one that took place in the United States, and which has impacted Australian farmers looking to buy nitrogen fertiliser, exposing them to the global dynamics in fertiliser trade to the point where now, farmers of the future need to be aware that they are part of a ‘global playing field’ and also need to understand these dynamics to make informed purchasing decisions.  

Mr Kennes outlined to local farmers how the fertiliser supply chain is adjusting to meet farmers’ needs to manage fertiliser price and inventory risk. Producers are looking at ways to prevent farm input suppliers from eating into their margins through increased fertiliser prices while upstream fertiliser players should also be aware of these changing margin conditions, adjusting their supply models in order to maintain market sales.  

He explains that the practice of farmers purchasing later in the season has led to shorter trading cycles, which coupled with manufacturers holding tight on stocks and production rates has shifted risk management of price and inventory towards the farmgate.  

He advises farmers to take suitable measures to mitigate this risk, given the greater hedging opportunities available thanks to more liquidity in fertiliser futures markets.    

In his presentation, Mr Kennes also questioned if yield improvement will adequately meet the additional global agricultural commodity demand by the year 2020, which would need an additional 140 million hectares of agricultural land globally based on current yield levels, or a 30% yield increase based on current agricultural land in use.  

While yield improvement and land expansion may meet the increasing demand for agricultural commodities, a possible production rebound will likely result in a future average price trading range that will be above historic average but below current heights.    

To achieve gains from productivity improvements, farmers have to apply new technologies, which needs to be facilitated by the chain partners including suppliers, sellers and marketers who should allow farmers the room to invest in productivity-increasing concepts in a commercially attractive way. This, Mr Kennes believes will encourage farmers to remain in the agricultural business.

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