Lower input costs relief for farmers - Rabobank

Farmers may be worried about lower export prices and forecasts of drought, but an industry report says they should feel some relief from lower input costs.

The report on farm inputs from agribusiness lender Rabobank says international prices for key inputs have fallen recently and, although domestic prices were taking time to follow, there would be some relief for New Zealand farmers as input prices were set to remain below historical highs during 2009.

The international market had seen US dollar prices for major inputs such as fertilisers fall by between 60 percent and 75 percent since their record highs in mid-2008.

However, according to the report's author Rabobank analyst Adam Tomlinson, a sharp reversal of the New Zealand exchange rate against the US dollar in late 2008 effectively offset a large portion of declining international prices, tempering the benefits felt by New Zealand farmers.

The report says relatively low global stocks of the major grains and oilseeds were expected to see prices for these commodities remain at higher than historical average levels for the next few seasons.

But a return of the 2008 commodity price highs was unlikely in the near future.

"The strong prices for major grains and oilseeds will result in a large area planted to crops throughout 2009, maintaining reasonable demand for farm inputs and keeping input prices at relatively high levels, albeit well below recent record prices," Mr Tomlinson says.

"International prices for fertilisers are expected to remain low for the next few years in view of increased fertiliser production capacity at lower price levels flowing through to the supply chain."

Agrochemical prices are also predicted to drop from record highs in line with wider commodity prices, although demand in 2009 remains unclear due to the uncertainty in the global economy.

Since May 2008 ocean shipping freight costs have fallen dramatically with new capacity coming on line, lower bunker fuel costs and lower trade volumes.

This would help ensure manufactured farm input prices are lower in 2009 than in 2008, the report says.

New Zealand farmers have also had to focus on cost efficiency and sustainability due to rapidly rising farm input prices and environmental restrictions.

"As a result of this, New Zealand farmers are increasing paddock testing for soil nutrients and better managing their livestock manure and reducing wastage of nutrient resources," Mr Tomlinson says.

International prices for manufactured farm inputs were expected to be significantly lower in 2009 than in 2008 with the fallout of the global financial crisis impacting all commodity markets.

However, the need to replenish global food stocks and supply the biofuel industry would continue to drive farmers to grow major grains and oilseeds and to increase productivity in 2009/10.