Feed costs soar as grain stocks dwindle

11 Jun, 2018 09:53 AM
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Brendan Hayden, a dairy farmer in Pilton, Queesland, can't grow feed because of the drought.  Photo by Peter Rickards, courtesy Sydney Morning Herald
He is paying unprecedented prices to feed his dairy herd, compounded by huge freight costs...
Brendan Hayden, a dairy farmer in Pilton, Queesland, can't grow feed because of the drought. Photo by Peter Rickards, courtesy Sydney Morning Herald

Queensland dairyfarmer Brendan Hayden is caught in a perfect storm as drought takes hold across much of Australia.

He is paying unprecedented prices to feed his dairy herd, compounded by huge freight costs in having to source grain and hay from further and further afield.

The cost increases are hitting hard in southern Queensland and northern NSW, where there is a concentration of livestock producers.

It is also biting in other states, with farmers in South Australia and southern Western Australia pulling grain out of export-focused supply chains to feed livestock.

A big drop in the Australian grain harvest last year and fears for this year's winter crop have fuelled the domestic price hike.

So has a greater propensity for livestock producers to buy feed based on strong returns for beef and sheep meat.

The situation was highlighted by last week's Gross Domestic Production (GDP) figures which showed a 1.7 per cent drop in agriculture's contribution in the March quarter, driven by a fall in grains, but partially offset by a rise in livestock.

It was the fourth consecutive quarterly fall in gross value added for the industry, which is down 13.1 per cent over the past 12 months, according to the Australian Bureau of Statistics.

Mr Hayden said that as a dairyfarmer he was in the unenviable position of being a price taker, at the mercy of processors.

However, no one from cattle feed-lotters to sheep meat, pig and poultry producers was immune from the rising feed prices, which came on top of higher power and fuel costs.

Mr Hayden recently paid $180 a tonne in freight to have hay carted more than 1800 kilometres from South Australia to his farm at Pilton in the southern Darling Downs.

There are now quotes of up to $985 a tonne for the on-farm delivery of oaten hay to the Darling Downs from interstate and $787 a tonne for barley.

"My grain supplier is not sure where our next load will come from," Mr Hayden said.

"And I'm not the worst, there are people that use a lot more grain than I do, that use a lot more hay than I do.

"Everything is getting scarce and, when you look at the freight costs, it is getting to a stage where it is unsustainable."

Grain traders have been sending shipments of wheat and barley from South Australia to Brisbane, where the port price for Australian premium white wheat is about $400 a tonne.

This compares to prices of about $300 a tonne at Port Adelaide and $310 at Kwinana in Western Australia.

Glencore-owned Viterra, which dominates grain handling and exports in South Australia, said local growers had been taking their grain out of its storage system to feed livestock because of a lack of rain.

Viterra said there had been 200 incidences of growers getting their grain back in the past six weeks, amounting to about 5000 tonnes of wheat and barley.

Others farmers have been buying grain in spot sales.

CBH, the WA-based co-operative which spearheads Australian grain exports, said its southern ports were the next logical source of grain shipments in response to the shortage on the east coast.

"As South Australia starts to run out, people will start looking at WA as the next logical origin, particularly if this drought continues up in Queensland and northern NSW," CBH head of marketing and trading Jason Craig said.

"The southern part of WA is probably the area that has had less rain here and has more livestock. We are selling a lot of grain domestically down there."

Strong local sales, Chinese demand for feed barley and a recovery in wheat shipments to South-East Asia have supported prices out of WA, where recent rain has revived hopes for this year's crop.

Mr Craig said grain had been shipped from SA and WA during past droughts but never so early in a season.

"I think right across Australia with strong wool prices, reasonably strong cattle price and sheep prices what we are seeing is growers tending to hang on to stock. We are certainly seeing that on the east coast and in SA and WA from a sheep perspective," he said.

Rabobank warned last week that Australian wheat exports could fall to 15.5 million tonnes in 2018-19, their lowest level in almost decade, as farmers braced for a second-consecutive below-average harvest.

NZX Australia head Hannah Janson said it was shaping as a perfect storm in terms of grain supply, with growing doubts about the new season crop outside of WA and Bureau of Meteorology data suggesting there was no relief in sight.

Ms Janson said beef and sheep meat prices were a factor in the volume of grain coming out of storage networks.

"Southern Australian stock feed manufacturers are talking of unprecedented supplement feeding of sheep, whereas in the past it hasn't been a factor," she said.

"We are now seeing stock feed manufacturers doing serious numbers into the sheep industry because the price is there for sheep meat and continues to support it."

Ms Janson said the dry weather also encouraged people with old season grain to hold onto it as a drought hedge.

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