Farmer Focus: Falling commoditiy prices bring negativity
When I consider the 2014-15 season, with falling international grain prices and higher costs of production and rent, there will be heavy losses for this agricultural cycle.
In other words, we will need higher yields/ha to cover costs that are now higher than the last season.
For example, for soya beans, a yield of 3.5t/ha with a total income of US$770/ha (£450/ha) is projected, while spending for one hectare, including rent, is US$870 (£515). The equation becomes red: in this case, the margin is negative by US$100/ha (£60/ha).
Last year we had to yield 3.8t/ha of soya beans not to lose money, but now we must reach 4.1t/ha – 7% more.
Maize in rented fields will not do better. With a yield of 8t/ha possible, total revenue would be US$750/ha (£445/ha), but the costs are about US$1,000/ha (£600/ha). It’s surprising how we must increase yields to not lose money. Last year we needed 10t of cereal and now 12t – an increase of 20%.
For wheat, the balance of production on rented land is also negative. More than US$200/ha (£120/ha) is lost with a yield of 3t/ha. Moreover, the producer would have to achieve 5t/ha to break even.
The agricultural sector has lost competitiveness and is facing a complex situation, with falling international prices, increased production costs, increased borrowing costs, higher taxes and services.
In this scenario, technology will be used less, which has a negative effect on productivity. In production areas away from the ports, the high cost of haulage further increases losses. Thus, the production frontier is retracted and regional economies lose the ability to diversify.
It is understandable that in this context, a dispute over rental values may occur, but many contracts are already closed. Or, as is already becoming more common, leases should be a percentage of yields, making it more flexible and fair as a total cost equation.
Otherwise, the link in the chain that is always broken is the farmer, in the middle of the ambitions of the owners and increasingly the government, raising money without any compensation.
Federico Rolle farms 2,250ha of rented arable land in the Pampa area of Argentina. He grows soya beans, sorghum, maize and wheat using no-till techniques and GM crops. He has a part-time role helping Brown & Co in the region.
