Prices are dramatically low and costs are very high. It can’t get any worse, right? Well, more records keep being broken. Unfortunately, it turns out that nothing is normal in this market anymore and anything is possible. Unfortunately, these are often worst-case scenarios.
- We received a signal from south-eastern Poland that corn on contracts is valued at PLN 320/t
- Are such low prices realistic? Isn’t this creating panic in the market?
Corn at PLN 320/t under contract
Yesterday we received a signal from the Podkarpackie Voivodeship that contracts for corn can be signed for this year’s deliveries (October – December) at a price, please note… PLN 320/t. Just as the price is irrelevant, the information is already verified and comes from a fairly large purchaser. Will anyone sign a contract at this price? Let’s do the math quickly. Seeds PLN 800 – 900/ha, but let’s face it, we will accept this lower value. So the seeds alone at this price are 2.5 tons of grain. Cost of fertilizers – urea 250 kg/ha, potassium salt 100 kg/ha, NPK 6-20-30 200 kg/ha (yes, some people use phosphate, but NPK in this system will have a similar cost) – PLN 1,300/ha, i.e. over 4 tons of corn (and with rather standard fertilization). Plant protection costs about PLN 200/ha (this is the only branch of agricultural production resources that, fortunately, keeps its prices relatively stable, and year-to-year increases are moderate). But PLN 200/ha at this grain price is over 0.6 tonnes of corn. So we have over 7 tons just for the costs of fertilizers, seeds and protection. Where is the collection, transport, cultivation and fuel? Combine harvester PLN 500/ha, fuel PLN 700 – we have another 3.75 tons of grain. A total of over 10.75 tons of corn for part of the costs – because we did not include depreciation, taxes, and possible leases. There are loans to service, they can be exchanged for a long time.
After all, the price of PLN 320/t is a slap in the face to the farmer. This is a problem of both the costs and prices of agricultural produce. Although it can be said that in order to restore the competitiveness of agriculture, agricultural expenditures must be reduced, there is no chance that farms will remain profitable with such low prices of agricultural produce. They will fall one by one. Even if the prices of fertilizers and seeds fell and fuel prices stabilized, with the price of corn around PLN 300/t, the farmer’s purchasing power would be dramatically low.
Wheat for PLN 400? Is it possible?
What about grain prices? We hear that it can be cheap during harvest. But we hope these are bogeymen. In fact, market panic benefits speculators. There have already been rumors that wheat will sell for PLN 400/t during harvest. It seems unreal. However, last year it seemed unrealistic for wheat to drop below PLN 700/t (and local prices are already lower). It was said that every product has its minimum price. Just like with used Audis or BMWs – they fall to a certain limit and stop losing value. This seemed to be the case with wheat. After all, it dropped to PLN 800/t and you have to wait it out, there is no way to go further. Well, there isn’t, but the artificially controlled market has verified it.
It may even be a shame to count the cost limit at such a low price. However, it can be more or less said that with such tragic valuations, the costs would be recovered at 10 tons per hectare. A lot of? a lot, because in Poland only a few percent of soils (maybe a dozen or so) are able to produce such a crop (and with favorable weather conditions or irrigation). Such a valuation would mean bankruptcy for many farms. At the moment, this price seems to be more speculation than something real. But we’ll live, we’ll see. If the country’s excess grain is not exported, things may be different.
Unreal, but it happened
Are these prices realistic? At the moment, at least when it comes to PLN 400/t in the case of wheat, it seems not. But as above – those thresholds that theoretically seemed unrealistic were already crossed. Production is unprofitable even at these costs and prices. If further declines are not stopped, conservative estimates say that at least a dozen or so percent of farms will not survive. But at such prices, most farms will probably be teetering on the verge of bankruptcy.
Corn at PLN 320/t seems to be a worst-case scenario, but similar prices appeared in the east of the country last year. Since it has already been said that Polish corn in ports must cost PLN 700/t (dry, of course) for anyone to be interested in it, what more can be added?
What needs to change?
Of course, Ukrainian grain and rapeseed prices in Poland have deteriorated, without a doubt. Even if we hear opinions that prices on the global market are also falling. Agreed – but in Poland these declines are usually even more severe, because we have a huge supply of grain (unfortunately caused by imports from Ukraine). The worst thing is that the mainstream media publishes information intended to discredit, among others: farmers strike. It is said that we have a positive trade balance with Ukraine. That’s fine, but when it comes to agriculture, our balance is dramatically unfavorable. And if Polish agriculture collapses, it will affect other industries – transport, construction, the entire agricultural industry (dealers, trading companies, distribution companies, feed companies). You can exchange for a long time.
Of course, there are other elements – Russia sells its grain for next to nothing, at dumping prices. Moscow can bleed its agriculture to death just to destroy Europe. We already know this from history, it is not a new Russian strategy. And at the same time the Green Deal. We have been hearing for several weeks that there will be changes. But there are no details yet. This is not just about the Green Deal. The EU must moderate its climate ambitions to make producing anything in Europe profitable. Otherwise, we will still have high costs and even closing the borders will not help, because prices, if they do not fall lower, will certainly not be higher. And with the current ecological policy, production in Europe is expensive. Purchasing power in agriculture will not increase without these changes.
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