Rising fertiliser prices could impact Australian livestock market

The price of WA cattle has hit another record high, but the rapidly rising cost of fertiliser could cause Australian livestock prices to fall according to ANZ’s latest Agri Commodity Report.

The report, released this month, found rising fertiliser prices caused by a range of global events could have a ripple effect on Australian farmers and the local food supply chain, especially if the spike continues into next year.

ANZ food, beverage and agribusiness insights head Michael Whitehead said the price hike could lead to many farmers re-evaluating their sheep and cattle stocking rates in 2022.

“Sheep and cattle producers may need to re-evaluate the impact high fertiliser costs will have on their bottom line, balancing up their forecasts for sheep, cattle and grain prices, versus increased input costs,” Mr Whitehead said.

“It may well be that some livestock producers will choose to reduce their stocking rates, given the potential difference in pasture growth from reduced fertiliser application.

“This could see an easing of re-stocker buying activity, which has been responsible for much of the high prices over the past two years, as livestock producers have sought to take advantage of ample grass through the good post-drought seasons to rebuild their own herds and flocks.”

Lower livestock prices would be welcome news for abattoirs, which have been struggling with rising domestic prices.

Recent modelling by Thomas Elder Markets found Australian beef processors were losing an average margin of $300 per head of cattle in 2021 — their highest losses in more than two decades — as local prices outperformed export price movements.

Both the Western Young Cattle Indicator and Eastern Young Cattle Indicator cracked 1000¢/kg for the first time this year, on April 1 and July 22 respectively, and have gone on to repeatedly break their own records.

Yesterday, the WYCI hit another record high after surging to a whopping 1129.36¢/kg.

The eye-watering figure marked an overnight increase of 81.5¢ and was up a massive 375¢ compared to the same time last year.

The EYCI was yesterday sitting nearly 70¢ lower than the WYCI at 1068.37¢, nearly 267.5¢ higher than a year ago.

Both the EYCI and WYCI remained stable overnight .

Meanwhile, the Trade Lamb Indicator was today sitting at 888.93¢/kg, up 139.13¢ from a year ago, while the Mutton Indicator was 609.77¢/kg, up 9.7¢ from a year ago.

While a fall in prices would ease pressure on meat processors, it could also slow the gradual rebuild of Australia’s stock numbers as they continue to recover from years of drought, according to Mr Whitehead.

He said the drivers of the current rise in fertiliser prices could remain active for some time judging by past comparisons.

“The last comparable global spike in fertiliser prices occurred from 2007 to 2009, caused by a combination of surging demand driven by record global crop prices, and China imposing high tariffs of fertiliser exports,” Mr Whitehead said.

That event saw prices take between one and two years to return to their previous levels.

“At the moment, global fertiliser prices have been pushed up partly due to the current high price of gas in Europe, which has caused some fertiliser manufacturers to either shut down or pass on the high input costs,” Mr Whitehead said.

“China’s recent move to stop fertiliser exports until mid-2022 will further reduce the supply of fertiliser in world markets, exacerbating the upward pressure on prices, as farmers, suppliers and governments globally seek to ensure some supplies for the coming year.

“Looking further ahead, the fact that domestic fertiliser prices will increasingly be subject to heightened global volatility could see further changes in Australia.

“In addition to some local companies increasing their fertiliser production and storage capacity, it could also accelerate innovation in areas such as micro-application of fertilisers through agtech, as well as the development of more non-synthetic fertilisers.”