Grain prices are soaring to historic highs but growers are cautious amidst predictions the true costs of inputs inflation are yet to be realised.
Burnt by a change in milling procurement followed by rising input costs and a wet harvest season it seemed a forgone that New Zealand farmers will jump in while the going is good.
But speaking at the Women in Seed forum in Canterbury, Luisetti Seeds grain manager Dean Smith sees it differently.
He offered little confidence for NZ growers.
“Yes, we are at historic highs in the market and there are a lot of reasons for that however the risk comes not in growing the grain but in the margin.”
Smith says rising input costs and market volatility amidst global instability is creating chaos, but to reap the reward there will be an element of risk.
“Weighing up the price versus the inputs it comes down to how each farmer perceives their own risk, noting too we are also operating in the most volatile markets ever.”
New season contracts for premium mill wheat are out at $630 a tonne with the current market for the same grain in Canterbury fetching up to $650/t, more than $200 up on the same time last year.
“You could say chaos creates opportunity.
“Looking at more than $600/t for mill wheat, two years ago farmers would be lining up to do it.
“They are not lining up, and that comes back to the risk,” Smith said.
Feed wheat and barley are trending similarly with markets tracking upwards of $550/t, more than $150/t higher that a year ago.
Smith predicts there will be a slow down in the NZ feed market from here as farmers hold on to uncontracted grain in an effort to achieve prices that reflect cost inflation.
Ukraine accounts for 30% of global wheat production but the conflict there has seen India, the world’s largest grower of wheat and eighth largest exporter, only allow exports to nations needing wheat for food security.
Globally, such moves are expected to compound.
“This will put further strain on what is already a globally constrained market,” Smith said.
Importers holding significant stocks of grain include Indonesia, Egypt, Turkey and China, but just who owns that grain is the question, Smith said.
“China in fact holds the end stocks of half the wheat but who owns it and how to get it sits among the global chaos that is driving our (NZ grain) pricing, but also at risk of input costs rising further.
“Traditionally feed mills or bread mills will import from Australia but to do that now they will have to plan forward, join the queue and it will have to be bulk shipments as now there are no containers and I can’t see shipping changing in the short term,” Smith said.
Mainfreight air and ocean freight manager Tony Martin predicts it will be two to three years before shipping issues are resolved.
“This is about 30-odd issues causing the problem and fixing any one issue is not going to solve the problem and everyone is sitting back saying – what do we do?
“Meantime prices keep going up, that’s what we are dealing with,” Martin said.
Business NZ director of advocacy Catherine Beard said the rising cost of doing business in NZ has risen 34.6% in four years.
“Government is very much into centralisation; in Business NZ we think that is not a good thing.
“Through centralisation we have reached choke point.
“We would like to think Government could trust the private sector to get on and do it.”
She cited the latest barriers to export emerging as the cost and availability of transport and logistics, cost of labour in NZ, the higher cost of doing business in NZ and finding new partners or agents in new destinations.
“It was always the high level of the NZ Dollar, that really doesn’t figure now.”
Free Trade Agreement challenges send the message to diversify markets.
“We are closely watching the China versus US tension – will NZ get to sit on the sideline or have to take a side?
“Just don’t have all your eggs in the China basket,” Beard said.
