Farmgate returns may be solid but surging inflation sees farm input costs sky rocketing

Rural News / opinion

Prices are high, but so are farm input costs. Chris Dillon explains why farmers are fortunate both are still in step and the risks when they aren't. The wild card is the struggle to improve productivity in the face of unwise box-ticking regulators

30th Jan 22, 9:17am by Angus Kebbell

In the sheep and beef markets offshore demand remains strong for NZ grass fed product, with little indication of key export prices are dropping.

A promising sign is that the volume of beef leaving our shores was the second highest ever for a December at 48,800 tonnes. China took almost half followed by the US. Good volumes were also sought by Japan, South Korea and Taiwan. The US market for imported bull has prices above US80c/lb (NZ$2.60/kg) more than this time last year.

But local processors continue to battle staffing issues when it comes to processing lambs, so pricing pressure has come off slightly in the North Island but prices still remain at record levels, which is needed. A 15-17kgCW lamb for example is currently making around +$35/head more than a year ago. However, it is expected that lamb prices will soften until the end of January.

South Island lambs are doing slightly better than expected as feed levels remain decent in many parts given the time of year. With Easter trade knocking on the door one would hope this will underpin farmgate returns and minimise any downward pressure.

This week we are joined by Chris Dillon, the Southland Federated Farmers president who explains why high demand and high market prices are actually only just helping farm gate net returns tread water.

The extended supply chain disruptions due to the pandemic are fuelling accelerated inflation in farm input costs. Farmers with debt have got interest rates that are rising sharply, fertiliser costs are up +20% because fossil-fuel costs are high, cultivation, harvesting and animal feed costs are up +19%. Because of those high fossil fuel costs, urea is nearly +70% higher than it was in 2020, and shipping costs are a whopping +500% higher than they were in 2018.

None of this could be endured without higher farm gate prices, and they need to stay significantly higher just to stay even.

Prices and costs are one thing, but farm productivity is also being undermined by Central Government rules, many of which effectively work against their stated goals, especially the environmental ones. Dillon talked about his local council applying a different interpretation of certain environmental regulations and interpreting rules differently to Central Government, which is simply confusing and at odds with the good work farmers are doing. There needs to be cohesion and currently central government and local government are missing the mark. I would say buckle up for a big and possibly another challenging year.

Listen to the podcast to get the full story and full perspectives.

Angus Kebbell is the Producer at Tailwind Media. You can contact him here.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

36 Comments

by Fairlyfrank | 30th Jan 22, 12:23pm 1643498635

Better hope high export prices continue as there will be a lot of pain if they don't and high energy prices continue . This shows agricultural exposure to high inputs particularly imported inputs . Urea and PKernal come to mind , maybe less reliance on these will be required, but it is difficult to achieve when the financing of many properties has been reliant on these inputs being utilized at low cost . You can bet government costs will continue to increase in line with international obligations required to fulfill free trade agreements.

by JKB | 30th Jan 22, 12:40pm 1643499629

Government imposed costs will continue to rise in line with their ideology

by fortunr | 5th Feb 22, 1:52pm 1644022328

Exactly.

by WhiskeyJack | 30th Jan 22, 3:29pm 1643509790

I haven't done the actual math but it'd be a fair guess that inflation adjusted urea prices were higher in 2008, PKE has surely been higher. You gotta be able to handle this sort of thing when you're a farmer because you get hammered by something pretty regularly. Weather, inputs, regulations, interest rates, the price you get paid, and not to mention the ebb and flow of public resentment. I think it's the highest rate of suicide by occupation.

If you ever meet and old farmer, you can bet they can handle pretty much anything, because they have been through a lot of tough times.

by linklater01 | 30th Jan 22, 2:28pm 1643506082

A question from a non-farmer. I believe that the price of nitrogen fertilisers has risen very sharply. I also believe that NZ is a high user of these fertilisers.

If that is generally correct, then surely it would be good both financially and environmentally to cut down on their use?

From my admittedly limited understanding, an increasing number of farmers are embracing all or some of the concepts of regenerative farming, part of which is to limit the use of these fertilisers.

by WhiskeyJack | 30th Jan 22, 3:18pm 1643509083

Even at the sky high prices of urea it will grow an extra kg of dry matter for 25c so it's still the cheapest form of feed you can buy. Feed a big Fresian cow 20kg/dm a day for 300 days will cost $1,500 in extra urea and she will pump out $4,500 worth of milk.

I just got back from talking to a regenerative farmer, our farms are close to the same size, he farms with 40% less cows and does 32% less production PER COW and 67% less production per hectare. We are at total opposite ends of the scale. If you are going to work your way up the ladder like I have done and buy a farm, you can't afford to be regenerative, it's just insane.

The regenerative model is not only unproductive it's also inefficient. They actually produce more CO2E per unit of production than I do when I follow science that has been demonstrated and proven and continues to improve. That's why the farmers that follow the science manage to increase the production of their farms over time, which always surprises regenerative farmers because when they start farming by hocus pocus their productivity crashes. If they had a better way, you would expect it to be the opposite.

by solardb | 30th Jan 22, 11:42pm 1643539365

Quite a talk you had there. Have you compared nitrogen runoff between the 2 farms?

by Casual Observer | 31st Jan 22, 12:13pm 1643584431

solardb - what are your views on using a farm's surplus nitrogen/nitrogen efficiency instead of just nitrogen runoff?

by solardb | 31st Jan 22, 12:38pm 1643585926

A wasted resource is how I see any nitrogen runoff , farm or urban. I believe one of the aims of regen farming is to increase the carbon content of the soil , which should increase its ability to retain water , and thereby water borne nitrogen and other nutrients. a use of cow barns and feed pads is another way of capturing nitrogen from cows. also , i dont think the riparian strips are been used to their full potential . In my view they should be wider , but incorporating fodder trees , ( which could include natives), harvested for feed. Be a god send for the drought stricken areas at the moment. There is a train of thought that natives are not the best tree for stripping nutrients out of waterway bound runoff. Because they generally don't suck a lot of nutrients out of the soil . ( there wasn't much in native NZ ). even nitrogen hungry exotic timber trees could be used and harvested.

by WhiskeyJack | 31st Jan 22, 3:04pm 1643594655

I think 90% of nitrogen run off comes from urine patches. I had my effluent tested straight from the solids separator a couple of hours after milking, 20mm of that was equal to 250kg/N/ha. I was shocked, but at the moment I can't really dilute it down any more than it already is. My mate had his tested from his massive pond where he stores it all up to be used over summer for irrigation, and by that point all the N had evaporated out and a 20mm application was only giving 4kg/N/ha.

I don't believe that composting barns will return a lot of N to the soil, it needs to go onto the soil as quickly as possible when conditions allow, otherwise it all goes into the air.

by keithwoodford | 1st Feb 22, 8:13am 1643656410

The nitrogen dynamics of a composting barn are very different to an effluent pond. Also, nitrogen does not 'runoff'. Phosphorus is lost in runoff and nitrogen is lost by leaching. These are fundamentally different processes. I agree that volatilisation of N from urine patches, N fertiliser and effluent ponds are three big issues - all related - which lie at the heart of the nitrous oxide issue. Composting barns can play a role in solving those problems.

KeithW

by CraigB | 31st Jan 22, 8:30am 1643571059

Another Regenerate Farmer here, my version of regenerate farming is more profitable and efficient than conventional farming Period. Unfortunately a lot of farmers are not profit driven for some bizarre reason. I note there’s no financial comparison above? Is this deliberate?

by Jack Lumber | 31st Jan 22, 9:59am 1643576386

Agree CraigB – I’m not a pastoral farmer but have worked with lots of them for 40 years. Im constantly amazed that profit is not a priority – I see so many farmers slaving away making nothing in effect. They seem very reluctant to look at any other way. I’m not saying low input systems work for all, I don’t know enough to comment on that, but many do need to change or it will change for them. All of the challenges noted here are the same for any industry or business so again farmers aren’t being picked on – it’s the same for everyone all over the world – I can attest to that!!

by Casual Observer | 31st Jan 22, 12:09pm 1643584175

Jack, despite other industries/businesses being the same it definitely is isn't correct to say that publically 'farmers aren't being picked on' - I have yet to see any other industry outside primary ag receive as much media space/comment and especially as much government media attention, as farming does.

by CraigB | 31st Jan 22, 2:00pm 1643590858

I know I’ll be slammed for saying this but, this government is very farmer friendly speaking as a farmer who is no fan of theirs. My feeling is that they are dragging the chain re Climate Change in general. What the PM says and does are two completely things (which is good for us) Labour has the Greens under control and is running a National Lite policy agenda. Not sure about 3 waters though!

by WhiskeyJack | 31st Jan 22, 3:09pm 1643594967

Are you up to date with the essential freshwater? You now need a resource consent to convert from grazing beef, to grazing dairy calves/heifers. Thats not the worst of it, there is a lot in it that has affected a lot of people, or at least will once council gets up to date with it etc.

by Jack Lumber | 1st Feb 22, 2:51pm 1643680281

I don't disagree there is negative comment but I believe the real nasty stuff is from a small minority who are unhappy at anything. The vast majority of people I talk with are not anti farming at all. All they want is to know animals get a fair go through the process - we all know they die in the end and the majority of us enjoy eating them. The other one is water is looked after - the vast majority don't expect pristine native bush water - if they do its stupid - but a good standard where you can swim without getting sick. Apart from that they really respect farmers as its a hard gig.

I know lots of other industrys who feel picked upon etc etc as well. I feel picked upon as well with no friends often in my industry as well but I get no sympathy from my children or anyone so just don't listen to it anymore and navigate my way through the never ending changes that are coming at all of us. I still do it so its my choice.

by solardb | 31st Jan 22, 12:14pm 1643584453

Exactly, most business's are chasing the mantra of more sales is better. then wondering what happened at the end of the year. I get promo material from a profitable tradie advisory service. They used to call it millionaire tradie. yes ,they were turning tradies into millionaies. how many made it out of how many trying , i don't know. while getting extra sales was part of it, the main gist was drilling down on the profitably of each job. not % etc, but how much you actually made on each job. most of the stories were of tradies realising they were making bugger all, then turning it around and making a good living.

Farmers are bombarded by fertiliser , chemical and feed companies telling them how they can grow 5-20% more using their product, its all extra cost . Heck if you used all the calf supplements avaliable, you would have 250 kg weaners in 4 months.Get a good price for them , but would you make anymore???

by Casual Observer | 31st Jan 22, 11:45am 1643582729

Craig B, genuine question - what is your version of regen farming? One of the issues is that there is no standard definition of regen. But then I question that there is a universal standard of conventional as well. ;-)

by CraigB | 31st Jan 22, 2:23pm 1643592208

Sure No Worries,

I think that Regenerative Farmings starting point is improving soil health. So things like leaving higher post grazing residuals counting earthworm numbers, looking at pasture biodiversity, measuring soil carbon (which I need to look into) soil compaction and comparing weight gains (diverse pastures should give better weight gains) I’ve been told there are people overseas working on standards. I see it as a system that takes the best from conventional farming, organic farming and biological farming and experimenting within one’s own comfort levels(we don’t want throw the baby out with the bath water!) it’s easier with beef than dairy as I’ve learned form personal experience.

by WhiskeyJack | 31st Jan 22, 2:21pm 1643592063

I didn't go into any financial details, as I was only talking to the manager but we did talk about the physical KPI's.

I will say this though, it's hard to make a $5k/ha profit when your income per ha is less than $5k, that's just the basic math.

by linklater01 | 31st Jan 22, 9:06am 1643573160

Whiskey-Jack,

Surely a figure of 67% less productive per hectare will see him out of business pretty quickly. That cannot be the experience of all regen farmers surely?

From the reading I have been able to do, there is not yet a lot of hard science behind it, but it appears that the big food companies are embracing it. Thus, I believe that Nestle has a goal of committing US$1.20 billion in regen farming by 2025 and buying 14 million tonnes of ingredients from the sector by 2030.

I believe that other companies such as Danone, General Mills and Unilever are also committed to regen agriculture. Now, i have no idea whether there is an element of 'greenwashing' involved in all this and if there is, I wouldn't be surprised.

by Whitney | 31st Jan 22, 9:34am 1643574850

linklater

Plenty of green washing from food companies to their own Shareholders regarding Regen .

regen and organics may well, be the best thing for a individual farm and or the farmer but it will reduce the total food available in a back drop of growing demand for food.

Just look at Sri Lanka who recently banned all imported Fertiliser/ Chemicals to force Organic /Regen, this political decision has fallowed massive food shortages and price increases in just months.

it’s not the answer

by solardb | 31st Jan 22, 10:39am 1643578787

Yes , that is not the way to do it . Its a gradual process.

Organic milk powder goes for up to USD $14000 per tonne, vs USD $4000 for non organic . The farmer gets a extra $1 per kg/ms . production is 10 -20 % less than a conventional . dairy farm . Its not hard to see NZ could benefit from a partial shift to organic, without bringing the price down too much .

so why aren't more dairy farms organic?That $1 premuim has only been one recently , (it took a threat of competition to get fonterra to pay more), and should be more like $ 2-3.

by Casual Observer | 31st Jan 22, 12:31pm 1643585487

Gotta keep up solardb - 'The Fonterra organic milk price pay out for the FY19/20 season is NZD 9.80 kgMS.' Non organic milk price was $7.14

https://www.fonterra.com/nz/en/our-co-operative/the-way-we-farm/organic…

by solardb | 31st Jan 22, 1:15pm 1643588141

Ok , i'm a few years out , i can't remember when it was they gave organic milk a premium . 5 years ago maybe. Only after many famers were going to jump ship .

by WhiskeyJack | 31st Jan 22, 3:12pm 1643595133

I think production is more like 30% down on conventional, and the costs are not down, no they are not! Organics seems to be a lifestyle choice, not an economic choice.

by solardb | 31st Jan 22, 5:32pm 1643603565

I think the 10 % figure I've seen is farms who were probably minimising their inputs before converting to organic.This study shows 18 % down on "conventional" dairy , 11% down on MAF model farm , whatever that is.

https://www.massey.ac.nz/massey/fms/Colleges/College%20of%20Sciences/IN…

by WhiskeyJack | 31st Jan 22, 2:46pm 1643593598

If I could own a farm freehold, or inherited a farm, then yes if you strip out all overheads except labor and R&M, you can still run at a profit easily enough but it's not going to cover the interest on 30k/ha for land. Your interest would be 20-30% of revenues.

It sounds like a lot of money for Nestle to spend, but it's about 1% of annual revenue or 8% of annual profit. Is that commitment? I don't know, I try new things from time to time and 1% of revenue seems to be about right for what I would spend on a trial, but they are spreading that out over 3y so I think they are being pretty conservative.

by redcows1 | 31st Jan 22, 10:53am 1643579583

Just tried googling it.

The results probably explain more about the difference between NZ agricultural and the rest of the world than anything.

Worldbank puts our use at 1895kgs/ha. 15 times the world average. Don't worry it's simply not possible. I assume they divide the fertilizer use by arable land area as that's how it's used in the rest of the world.

I'm guessing we are the only ones using it on mixed permanent pasture . And you'll find that whiskey jack despite being hugely different to the Regen farm is probably closer to Regen as proposed in the rest of the world than the rest of the worlds farmers.

by Hans Brink | 31st Jan 22, 11:25am 1643581530

Sure we can go regen. The farmers sitting on land with no debt can just cut back production and sit back, no sweat. It is the people in towns and cities who will suffer with less food and higher prices. Global grain supplies rely on nitrogen, without it's use there would be dire basic food shortages to feed the masses.

by CraigB | 31st Jan 22, 2:34pm 1643592865

Where is it said that Regen farmers don’t use Nitrogen? The ones I know and myself use it! Looks like you’re getting confused with Organic Farmers. NZ farmers aren’t in the business of feeding the world that’s just some marketing myth. We’re only interested in selling to the people that can afford our products. And there’s nothing wrong with that.

by Whitney | 31st Jan 22, 2:46pm 1643593560

CraigB yet most Nz meat goes to the hamburger market in the US, similarly most milk goes to Asia, hardly premium end destinations

by keithwoodford | 1st Feb 22, 8:28am 1643657320

Whitney,

The biggest market for NZ beef is now China at 36% just ahead of US at 35%.

Lamb is 42% to China and mutton is >80% to China.

But the point you make about premium destinations is correct.

KeithW

by Hans Brink | 31st Jan 22, 10:46pm 1643622377

Yeah CraigB, thing is NZ pastural farming is already regen. Our soils are not carbon deficient. Regen ag is something that suits degraded soils in places like the US and Aus. The trouble NZ has is our country in the main is very steep so to apply nutrients is only able to be done by air therefore to be affordable they have to be high in the required nutrient. Another problem, weeds. Without chemicals how do we keep our hill country in production? Labour is scarce let alone grubbing weeds on the hills. As far as feeding the world goes, we have to import grain and other foods just to feed our minute population of 5 million. We couldn't feed even a large city let alone the world.

Where I do agree is, we have to have a quality product. We already have it and we don't have to take practices from abroad that have no advantage in the way we are already producing. Promoting what we have already, is where it is at.

by Casual Observer | 31st Jan 22, 11:54pm 1643626483

Using or not, N, is one of the issues that confuse re what is re-gen to the non regen community. A farmer in our area refers to themselves as regen and shuns any synthetic fertilser and certainly doesn't approve of irrigation. Yet there are regen farmers who use both. This is where confusion as to what is meant by regen lies.

Thanks for replying to my question re your version of regen above.