Australian grain farmers on war footing

But this comfortable routine is destined to end in a week or so. Come April, Dyer – a grain grower based in the Victorian town of Kaniva, which is closer to the border of South Australia than Melbourne- will finish up as late as midnight, doing shifts on the family farm’s tractor to plant the winter crop of wheat, canola, lentils and faba beans.

“It’s been a wild time,” he told The Sydney Morning Herald and The Age.

“We’ve never had a global pandemic followed by a war in a major grain-growing region before.”

In November, Dyer will harvest what has rapidly become one of the world’s most in-demand crops, knowing full well that many of his Ukrainian counterparts haven’t been able to do the same.

Taken together, Russia and Ukraine are the biggest global wheat producers and are known as the ‘world’s breadbasket’. They make up close to 30 per cent of global exports: Russia produces nearly 80 million tonnes of wheat a year and exports 30 million of it, while Ukraine exports around 20-25 million tonnes a year.

Russian President Vladimir Putin’s war on Ukraine has cut off many countries’ access to their usual supply of wheat. The Russian Navy has blocked hundreds of ships carrying grain exports from leaving the Black Sea, crucial Ukrainian infrastructure has been damaged, and Russian forces have closed in on two key ports: Kherson and Mariupol.

Egypt, Turkey and Yemen are among the countries most reliant on Ukrainian wheat imports. For countries in the Middle East and North Africa, the price of bread – a key staple of their diet – is rising, along with civil discontent, which is becoming a concern for governments. Human Rights Watch has called for governments to ensure the Ukraine crisis doesn’t exacerbate food crises in the Middle East and North Africa.

All of this means that countries that usually get their wheat from across the Black Sea will have to turn to alternative markets – and Australian farmers now find themselves the unwitting beneficiaries of war.

“There has never been more demand. And not just for Australian wheat – but just food in general,” Dyer said.

“We want high prices, but not for this reason.”

Dyer’s phone is flooded with text messages of offers to lock in orders for wheat at record-high prices, even though the winter crop won’t be harvested until November at the earliest.

“Humbling is probably the first word that comes to mind,” he said. “The vast majority of grain farms in Australia are family businesses.”

He observes that there are fewer and fewer grain farmers now that technology has enabled farms to scale. “This job, all the knowledge and understanding of how to do this stuff has fallen to fewer and fewer people as time goes on.”

ANZ Bank’s head of Agribusiness Insights Michael Whitehead says the war on Ukraine has pushed Australia into playing a more significant role in global wheat trade.

“For the first time ever, this is changing the whole grain trading picture as we know it,” he told the Sydney Morning Herald and The Age. “Your traditional exporters, buyers, markets: they’re all changing.”

Countries will be looking to ramp up the amount of grain in storage, he says.

“If we thought that countries had increased their food security policies, ie. put a lot of grain in storage in the past, you’d love to be in the very large grain storage building business over the coming year,” he says.

Global wheat prices are currently hovering around record highs. Whitehead is confident prices will remain high, albeit volatile, amid the uncertainty surrounding Ukraine and how much of its crucial infrastructure is still intact.

Across 12 months, global wheat prices have risen 46 per cent. Chicago wheat futures, the global benchmark for wheat prices, were trading at about $US10.80 a bushel on Friday. A year ago, it was hovering around $US6.

“Everybody in the industry is wondering exactly that: how much damage has happened to the actual paddocks or fields, to the actual grain in the ground? How much damage has happened to the storage it would go into, to the train lines that would get it to the port, to the silos at the port, and to the ports themselves?”

“The world doesn’t know if any [wheat] will come out, or if the war might end tomorrow, and a reasonable amount could come out … The market spikes and then goes down a bit because of this uncertainty.”

Though Whitehead is confident prices will stay high, Dyer – who doesn’t lock in orders until around September, when he has a better sense of how much or little the harvest will yield – thinks there’s a chance the world could be a very different place in six months’ time and demand won’t be as high anymore.

“Farmers aren’t as focused as much as you might think on pricing because you have to have the stuff to sell first,” he says.

Grain farmers are at the mercy of one key variable they can never control: the weather. “Rainfall equals yield for us,” Dyer says. While prices can double from one year to the next, yield can vary by as much as 400-500 per cent.

“That’s farming. You play the cards that you’re dealt.”

Money on the mind

1,250 kilometres away from Kaniva, fourth-generation farmer and wheat and cotton grower Thomas Carberry from NSW’s Narrabri is optimistic about this year’s outlook.

“We’re loving the market at the moment,” Carberry says. “There’s not too much keeping me up at night.”

But even though profits will likely be boosted by steep global wheat prices, both farmers, like all those across Australia, are feeling apprehensive about the rising cost of necessities such as fuel, fertiliser and chemicals.

Industry organisation GrainGrowers’ chief executive David McKeon says concerns among farmers about high input costs are “way out in front”.

“If we’re looking at the major farm input costs of chemicals, fertiliser and diesel, we’ve seen really big price rises for those products. So, that’s eroding the margins for Australian farmers to really make the most of the opportunity,” he says.

The higher cost of farming production has been another by-product of the war on Ukraine. Constricted oil supply has seen petrol prices skyrocket, contributing to rising inflation in Australia and around the world.

The availability of urea, a key component in AdBlue, a liquid added to diesel to reduce pollution, came under pressure in early December.

Fertiliser – another key export of Russia’s – is also now around four times more expensive for farmers.

“It’s $1,600 a tonne of urea that people are talking about,” he says. “At the start of last year, it was $500 or $600.”

The high costs mean farmers will be forced to consider reducing the amount of fertiliser they buy and use. “There’s a scenario in which farmers don’t capitalise on their yields because the fertiliser was too expensive to do so.”

Dyer worries that when all’s said and done, the high prices for grain won’t stick around, but everything else will.

“The stakes in the whole game feel higher,” he says. He’s conscious that a drought this year may mean families across the world go hungry.

“This year, it’s the highest risk, most expensive crop we’ve ever planted. That’s what we’re about to embark on, and we’ll see what happens from there.”