Agricultural fuel price pain set to inflame dry summer concern

Although not as high as last year - yet - fuel prices will almost certainly punch holes in grain harvest returns and test earnings margins for seasonally-stressed livestock producers trucking sheep and cattle to sale, or buying in feed supplies.

Unlike the 2022 peak, after crude oil prices topped $US100 a barrel, industry analysts expected the latest would not subside.

National average pump prices for diesel and petrol have been above $2 a litre for more than a month - up about 40 cents/litre since late July.

In fact, $2/litre for petrol may soon be considered cheap, with NSW motoring body NRMA predicting global pressures would keep driving fuel prices to new records.

Although it's no consolation, New Zealand prices have climbed much higher, with petrol tipped to be around $3.20 ($NZ3.50) by Christmas.

"While I would not expect a continuation of the past two months' sharp rises during the next three, the bad news is I doubt if we'll see prices falling," said fuel retail industry boss, Mark McKenzie, who represents 95 per cent of Australia's bulk fuel distributors and most service stations.

"We've climbed a mountain lately, and may even plateau for a while, but I couldn't predict how long we'll have to endure prices at these highs, or higher.

"I'd plan for harvest season fuel costs to be around current levels - that probably means above the delivered prices in November last year."

Fuel costs were now a "substantial proportion" of the farm balance sheet and lately having a particularly corrosive impact on producer margins, said NSW Farmers' business economics and trade committee chairman, John Lowe.

That was certainly the case for anybody destocking into depressed livestock markets.

"Fuel's always a big factor in the cost of doing business, but for us the rises coincide with other big increases, like insurance up 40pc, rates up 62pc after recent land revaluations and higher prices for power, equipment, fencing materials and our grocery bills," he said.

Mr McKenzie, the chief executive officer at the Australian Convenience and Petroleum Marketers Association, said the latest spike had turned heads because average city prices in the June quarter were relatively tame, around $1.60/litre for petrol and $1.80 for diesel.

However, then followed a six week wholesale price surge since July which added 41 cents a litre to diesel.

By mid-September retail fuel prices were up about 26pc on the same time in 2022, even though crude oil's price was still below $US100/barrel.

While it's not quite an arrival of the four horsemen of the apocalypse, four clashing contributors have hit the local fuel market hardest.

Global crude oil production has fallen; fewer oil refineries have been processing crude oil; the cheaper Australian dollar makes offshore fuel purchases more costly and the federal government's fuel excise levy lifted on August 1.

Other factors have stressed the market, too, including a jump in refined fuel shipping rates into Australia - up 6pc in mid-September to about three times the "standard".

Australia imports 80pc of its diesel needs and 60pc of its petrol.

Globally, the recent cost rises began with major oil producing economies, led by Saudi Arabia, noticeably tightening supply (cutting 1.3m barrels/day until 2024).

That was a U-turn on their strategy earlier in 2023 when OPEC countries feared a global economic collapse and released more oil at cheaper prices to incentivise demand.

Last week Brent crude oil prices peaked around $US94/barrel - up about 30pc since July.

At the same time, Mr McKenzie, noted that although crude oil only represented a quarter of the final diesel and petrol cost, northern hemisphere stockpiling for winter was adding demand pressure.

Meanwhile, less global refining capacity (down about 4pc since 2020), was frustrated by recent temporary plant shutdowns in Malaysia, Japan and the United Arab Emirates.

In 18 months refining premiums have soared from around 8c/litre to 55c for diesel and 38c for unleaded petrol.

While refinery capacity was now recovering, Queensland-based bulk fuel distributor, IOR, reported Singapore wholesale diesel prices above $US131/ barrel, or up 6pc in the week to September 15 - price points not seen since last November.

This was partly due to OPEC crude oil cuts leading to lower refined diesel yields.

The low Australian dollar, at US64c, added another 6.5c/litre to refined import prices as it fell from US69c in July, while the federal fuel excise lifted 1.1c to 48.8c/l.

The fuel excise, which rises every six months, and the goods and services tax together represent 70c of the retail cost of every litre of petrol and diesel, although farmers and road transporters reclaim the excise, or a similar credit.

However, NSW livestock and freight carrier, Scott McDonald, said although their excise costs were refunded, farmers going into harvest season or moving stock and fodder around had still copped the impact of fuel's overall price rise.

"Fuel is really starting to get talked about a lot, especially if you are destocking or looking at buying hay or grain," said Mr McDonald, president of the Australian Livestock and Rural Transporters Association.

Not only were fuel prices "a hell of a lot higher than last drought", so, too, were other transport costs, including finding and retaining drivers, or buying tyres, made from oil.

"A new set of tyres on a B-double now costs about $30,000, twice a year," he said.

"It's hard to say if producers are reducing their livestock trucking decisions, but I'd think freight costs will be a large factor when they consider their stock feeding costs if conditions keep getting drier.

"Livestock are worth much less than they were in 2018 and '19 and we also had stockfeed freight subsidies back then."

NSW Farmers' Mr Lowe, who produces cattle, prime lambs and grain, agreed road freight was a rising stress factor for the many producers trying to responsibly manage livestock numbers in preparation for another potential drought.

"We've certainly encouraged our members to put their drought management plans into action and not to be frightened about conversations with the bank manager," he said.

"Unfortunately, there's not much we can do about our fuel use.

"Farmers rely on fuel and transport services, which is why we fight so hard to be exempt from the government fuel excise.

"You definitely couldn't afford to be doing this job if the excise rebate was hijacked."