A new initiative is under way for cotton growers looking to take control of their long-term input costs, with fuel coming under the spotlight.

Forward pricing could help growers budget their crop more effectively, giving them a better idea of input costs up to six months out from planting.

Morella Ag, near Goondiwindi, has put in an order for 200,000 litres of fuel, to be delivered in August and September.

Forward pricing allowed the family operation to lock in diesel at 121 cents a litre delivered to the property, just slightly higher than the spot price at the time.

Andrew Coulton of Morella Ag said fuel was a major cost in the operation, with earthmoving, planting, spraying and picking.

“We’re pretty happy with our suppliers but we’re always trying to look at ways to reduce how much we spend,” he said.

“At the moment the price is reasonable and we can make money with fuel being at this level.

“If we can lock it in it gives us some certainty going into the next season.”

Mr Coulton said he wouldn’t forward price all his fuel, but would use it as an extra budgeting tool.

“It means we can look at the price we locked in with this contract and work with those figures in our budget,” he said.

“If fuel goes down in price between now and then we’d have a bit of a loss there but the price we’ve locked in is reasonable.

“If it goes up we’ve got an advantage.”

Forward pricing input costs made sense with cotton being forward sold, Mr Coulton said.

“We always have a bit of an idea about our fuel use, so we can work out what we’ll need,” he said.

Rain Agribusiness grower services manager Tim Whan, Narrabri, who was responsible for the deal, said forward pricing fuel gave customers an opportunity to manage price risk.

He said his business was focused mainly on the cotton industry, supplying anywhere from 20,000 litres to one million litres and forward pricing from one to six months ahead.

“The economics for forward pricing means the larger the parcel the better the pricing for the customer,” Mr Whan said.

“It can be slightly more expensive than the current spot price, but what growers are doing is locking in a margin.

“The price could go up 10 or 20 cents, or down by that much, but at least growers know they can still make a profit from the crop.”

Mr Whan said the goal wasn’t to tread on the toes of local fuel suppliers, but give customers a broader range of options with forward pricing.

“We are really competing for the port to farm direct business,” Mr Whan said.

In the event the fuel wasn’t required the contract could be rolled into another time period or washed out.

“We have the ability to wash out the unused portion of the physical contract or roll the unused portion into a different timeframe that suits your demand or needs,” Mr Whan said.

Having strong relationships with agricultural suppliers made it easier for the Coulton family to reduce input costs and find the best deals.

“At the moment there seems to be a lot of pressure on agricultural suppliers with lots of new players entering the market,” Mr Coulton said.

“We are always reluctant to change who we use because we have relationships for everything from fertiliser to chemical, and seed, but at the same time there needs to be innovation in terms of forward pricing options and payment options.”

Extracted in full from The Land.

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