Input prices ease as Strait of Hormuz stays open
Australian farmers have welcomed signals pointing towards an easing of prices for urea and fuel after concerns about the Strait of Hormuz closing.
Farmers are hopeful the fuel and urea price spikes triggered by US airstrikes on Iran have eased, with tensions in the region showing signs of de-escalation.
In the immediate days after the strikes, oil prices spiked and there were concerns about a possible closure of the Strait of Hormuz.
The strait remains open despite the Iranian parliament voting on a motion to close it in direct response to the US strikes.
Almost instantly, Australian urea prices shot up by $100 to $150 a tonne, and there was concern about instability around the diesel fuel price.
This week, urea prices have stabilised at between $700 and $800 per tonne.
The Strait of Hormuz is considered a major chokepoint, with an estimated 20.5 million barrels of oil passing through daily — about 20 per cent of the world’s oil supply.
A ceasefire between Israel and Iran began on June 24, contributing to some de-escalation, but tensions remain high.
GrainGrowers advocacy and rural affairs manager Sean Cole said in the past week, there had been a US$10 a barrel drop in oil prices, and it was hoped that would flow through to savings at the pump shortly.
“We can expect to see prices start to abate in the coming week or so,” he said.
Mr Cole said it was reassuring that the Strait of Hormuz had remained open.
“I think a closure of the Strait is unlikely at this time,” he said.
He said very little grain is transported through the Strait of Hormuz, and the concerns relating back to Australian farmers were mostly in relation to input prices.
Farmers could expect to see a stabilisation in urea prices after the instant lift late last month, he said.
Victorian Farmers Federation grains group president Ryan Milgate said it was pleasing to see a stabilisation.
“Urea took a fair spike and we were looking at a $150 a tonne increase at the time, I heard of prices going up as high as $890 a tonne,” he said.
Before the airstrikes in Iran, the urea price was closer to $755 a tonne domestically.
“What we are starting to see now is some stability, and the emotion is going out of the market,” he said.
Mr Milgate said there was a well-known quote that “you buy the rumour, and sell the fact.”
“We don’t want to be buying on rumour,” he said.
Grain Producers Australia chairman and Western Australian farmer Barry Large of Miling said input prices were always a concern.
“Our margins are tight, and we need to be ahead of the game in what we can anticipate,” he said.
“Everyone worries about input prices.”
