CelsiusPro: Dry Season Protection for WA and SA Farmers

Jonathan Barratt

May 25, 2022

As wheat production costs skyrocket, the weather needs to behave more than ever! 

Sowing for the winter crop is nearly complete. Even though the crop is waiting to emerge, a quick snapshot on current macro events suggest that the hard work is all just about to begin. Given high input prices, the weather needs to behave more than ever for a successful year!

Cost of major inputs continues to skyrocket (PIRSA 2022)
Chart 1 – Cost of major inputs continues to skyrocket (PIRSA 2022)

The national average yield for wheat since 2010 is between 1.6t/ha – 2.6t/ha. According to GRDC, due to input supply constraints, this year’s input prices have skyrocketed averaging around $410 per ha, fertiliser and herbicide prices have more than doubled, fuel costs are elevated and with no respite on the horizon farmers will need to keep a closer eye on inputs and weather events. Although these input prices are partly compensated by higher overall wheat prices of around $400+ per ton the margin for error between a successful, breakeven or loss year is slim. The need to monetise some of this risk in some way is becoming a prerequisite to sowing, more so in marginal regions. For example, in SA, growers in a low rainfall environment producing APW are faced with slightly better returns than they had in 2005(see Chart 2). Alongside soaring input prices ( Chart 1) , the weather is the other single most important factor to a successful crop. Monetising this risk can provide a level of comfort.  So if the season feels more challenging than usual, it makes sense to look at some seasonal weather certificates early to help compensate lost yield caused by a dry season.

Chart 2 - Wheat production costs (APW) versus total variable costs (PIRSA)
Chart 2 – Wheat price (APW) versus total variable costs (PIRSA)

We are all too familiar with La Nina conditions which have brought record yields to some regions however looking ahead; recent BOM updates suggest that only one of seven models continue the La Nina condition throughout the winter. This increases the potential for a dry season and prospects of reduced yield due to a dry finish. On average, the winter growing season takes about 150 days, with August – September regarded by most farmers as being the money months, and generally, a good yield requires about 150+mm of in-crop rain. Most understand that no rain provides for a reduced yield, which could present a scratched year and, perhaps due to high inputs, a loss year. So, hedging against a shortfall in this rainfall makes sense. 

To compensate for a low yield caused by a dry season, CelsiusPro has been structuring Weather Certificates that hedge a dry season. The longer the risk period the more economical the premium will be, and the drier it is the more the payout will be. We have recently been structuring Weather Certificates for Jamieson on the Eyre Peninsula in SA. Jamieson is currently dry with only just 10mm of rain in the last three months; soils are characterised as being calcarosols and sodosoils, which both have a low water holding capacity. Sowing into a dry bed is normally risky more so when inputs are so expensive. It makes perfect sense that if you have sown into a dry bed or experiencing similar dynamics then to spend between $15-20/ha for some dry season protection helps ease the pressure when spending excess dollars on other inputs. Request a quote below if you’re interested. 

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