Farmers in the Americas are set to face a more challenging margin environment in the year ahead compared with many of their global counterparts, according to Rabobank.
In its semi-annual Field Crop Margin Outlook released this week, the Dutch bank said that while reduced fertiliser costs and strong crop yield helped farmers in the US Great Plains region this year, machinery, labour, insurance and other costs mean that margins are likely to fall below long-term averages in 2017.
Addressing the “recovery of margins in Europe versus [a] continuation of difficult times in the Americas”, Rabobank wrote that it expects many Midwest farms to become distressed following a third consecutive year of low margins, raising the question of whether land prices will fall quickly enough to restore them.
“We forecast fertiliser prices for 2017 to remain depressed and remain around today’s levels. Overall, fertiliser prices today are about one-third lower than they were on average last year. This means that yield will be the most important factor in projecting farmer margins in 2017,” Rabobank wrote.
The report also analysed Brazil, France, Poland, the Netherlands and Australia. In Brazil, farmers have benefited from favourable input prices and a weakening of the currency this year, and margins will remain high in 2017 though issues of credit availability and declining soy prices pose challenges in the years ahead, according to the report.
Despite lowered input costs, French farmers experienced lower yields this year; 23 percent below five-year averages for wheat and 16 percent lower for barley. While gross margin will likely recover in 2017, poor sentiment among farmers has been exacerbated by poor returns in French livestock and dairy sectors, which will weigh on input expenditures next year.
In the Netherlands, strong potato prices will allow above-average margins to continue next year, Rabobank predicted. But Polish farmers, who use compounds rather than single-nutrient fertilisers, have not benefited from a decline in input costs that has helped their counterparts in other regions.
“Prices of compounds are less volatile. The question is how long this situation will prevail and when Polish compound fertiliser prices will decline too or whether farmers will switch to other products. Such an event would further boost farmer margins in Poland,” Rabobank wrote.
Meanwhile, above average yields and a lack of drought have placed Australian farmers in a good position, but declining wheat prices could lead to a deterioration of margins in the new year, according to the report.
To arrive at its predictions, Rabobank used average prices and application rates for seeds, crop protection products and fertilisers and then applied them to a theoretical model farm growing no more than three crops.