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Wheat to lead crop margin rebuild: Rabobank

Grain Central, March 18, 2024

Outside the higher-rainfall mixed-farming regions where it is a valuable dual-purpose crop, canola is tipped to see a drop in area this season. Photo: Ross Graham, Binni Creek Lamb, Cowra

GROSS margins for all winter crops in 2024-25 are set to increase on the back of a lower cost of production, according to Rabobank.

The report, Australia’s winter crop gross margins, forecasts that the 2024-25 wheat crop will see the largest increase in gross margins from the previous season, at around 34 percent, up 14pc on 2023-24.

The average gross margin for barley is estimated at 33pc, a rise of 8pc on last season, and canola is expected to see a similar jump, at 26pc, an increase of 9pc.

Report author, RaboResearch grain and oilseeds analyst Vitor Pistoia said these figures could have a significant bearing on growers’ planting decisions for the outcoming season.

He said this trend could favour wheat plantings, with the 2024-25 crop projected to have a gross margin of $281 per hectare, compared with an average $158/ha in 2023-24.

“The $281/ha gross margin forecast situates wheat as potentially the most profitable of the three major crops for 2024, together with barley,” Mr Pistoia said.

He said these dynamics – and the fact wheat is the cheapest to produce of the three big Australian winter crops – will likely see the area planted to wheat in the coming season remain above the 12-million-hectare mark.

“Also due to the lowest variable cost, wheat might expand its area over other crops, especially canola.”

Mr Pistoria said while the price of wheat was forecast to drop 8pc year on year, a predicted larger reduction in the variable costs of fertiliser and chemicals, estimated at 20pc, would boost the gross margins.

“In the 2023-24 season, wheat was cropped on 12.5 million hectares or 55pc of the winter crop area,” Mr Pistoia said.

“Its total revenue was only exceeded by beef, and Australia is the fifth largest exporter of wheat globally.”

He said wheat had been the only crop to have achieved above-average gross margins in four of the past seven seasons.

Barley benefits

Mr Pistoia said favourable margins and continued influence of Chinese buyers should keep planted barley area at more than 4Mha for 2024-25.

The report estimates 2024-25 malting barley margins to come in at around $282/ha, up from an average $225/ha in 2023-24.

“In combination with the benefits of barley at paddock level, such as weed control and optimising field work schedules, this sees barley as a strong and reliable crop choice for Australian farmers,” Mr Pistoia said.

Rabobank analyst Vitor Pistoia

Mr Pistoia said China’s import tariff on barley – announced in 2020 and scrapped in August last year – had impacted grower margins substantially, with barley recording the smallest margin growth of all three big winter crops between 2019-2020 and 2022-2023.

“Australian farmers’ response came in the form of area reduction – in this period, area planted to barley was reduced by roughly 1.3Mha, or a 25pc reduction,” Mr Pistoia said.

“Unexpected support for barley growers had come from reduced global wheat and corn ending stocks at the time, which prompted the demand for barley as a feed alternative in the period and avoided further price reductions.”

Lagging canola margins

While canola crops will also benefit from reduced production costs, Mr Pistoia said the gross margin for the oilseed was predicted to be lower than the wheat and barley.

He said the average gross margins for canola was forecast at $251/ha in 2024-24, well up from last season’s average of $158/ha, but still less than the competing winter crops.

The report points to the global canola market expectations of no “massive commodity price upside for the 2024-25 season” for these figures.

Mr Pistoia said canola had the highest correlation between margin outlook and cropping area of all the big three Australian winter crops, and a reduction in area planted is expected in the season ahead.

He said an area of around 3Mha was expected for the 2024-25 season, with the east coast showing a higher share of canola area due to already good levels of soil moisture through the recent summer.

Down on long-term average

While a boost to farm incomes, the margins are still down on the seven-year-average which sits at 43pc for wheat, 41pc for barley and 45pc for canola.

Rather than reaching these levels, Mr Pistoia said this upcoming winter cropping season “should see a rebuild close to historical levels”.

Mr Pistoia said “relatively elevated farm-input prices” combined with “substantial grain and oilseed price reductions” hit crop margins in 2023-24.

“The commodity price forecast as well as the expected cost of farm inputs are considerably different from the previous seasons, which has altered the profitability scenario for the upcoming winter cropping season,” Mr Pistoia said.

He said that the improved outlook will depend on how weather impacts the season.

Source: Rabobank

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