A shift in the demand for agricultural inputs signals a shift in prices to grow the 2014 crop, according to Purdue Extension agricultural economist Alan Miller. After the drought last year there were short supplies and high demand resulting in higher prices for farmers. But with expected yield increases this year commodity prices have come down. Miller says the good news is the likelihood of a decline in the cost of inputs too.
“I think that we’re going to have some declines. We’ve already seen a pretty significant decline in our fertilizer prices. We’re expecting fuel to be down and overall I think what we’re going to see is lower cost of production for corn and soybeans here in Indiana.”
He says keep an eye on the fertilizer marketplace and he suggests you may want to practice patience.
“Some recent years we would actually be worried about locking in not only our price but our supply, and in a market like we have currently for fertilizer where prices are I decline, we have sort of a worldwide glut of fertilizers. We have production capacity that has increased faster than demand. The general trend is down so we can take more of a wait and see.”
But Miller says you still need to take into account seasonal price patterns, since the best fertilizer buy might be coming soon.
“Typically the lowest prices for fertilizers are in the early fall period and then prices increase seasonally into the spring, but if we look at that outlook closely enough we’ll find little gems like potash. Maybe we just ought to take a wait and see approach for awhile because those prices are working their way down right now.”
Potash and phosphate prices have been declining since the fall of 2012 and are down 15-17 percent since last spring. Nitrogen prices peaked last spring and have dropped about 22 percent this fall. Farmers’ ability to apply fertilizer this fall will help determine what prices will look like for next spring.
“If weather or a late harvest were to keep farmers from applying fertilizers this fall, it could drive fertilizer prices down for the spring,” he said. “Normally, fertilizer prices hit bottom in the early fall, but we will have to wait and see is if the market is weak enough to sustain the drop into the spring.”
Nitrogen prices also are falling because the U.S. is now a low-cost producer. North American fertilizer producers are expecting historically strong sales this fall.
During the height of the ethanol boom, farmers were growing more corn and using more nitrogen. Plus, natural gas prices were high. Since then, natural gas prices have fallen, which has led to renewed interest in investing in domestic production capacity for nitrogen fertilizers. This leads to greater supplies of U.S.-produced nitrogen in the future if the cost of producing it here stays well below its market price as it is now.
“Corn growers really will start to see the full effect of more domestically produced nitrogen in 2015,” Miller said. “We have been importing more than 50 percent of our nitrogen fertilizer, meaning supply disruptions could easily impact prices. As we produce more of our own, we will import less. The bigger supply will benefit corn producers.”
Recent prices for nitrogen in anhydrous ammonia form have hovered around $700 per ton. According to Miller, that could possibly eventually fall to as low as $400 or $500 per ton if U.S. production capacity increases considerably.
One area where farmers won’t see price relief is seed costs. By Miller’s estimates, some seed could be up by 2-3 percent or more for the 2014 planting season.
“Seed is not the place where growers will cut corners to try to save money,” he said. “They will be careful in pricing inputs, but they want the technology to produce the best crop possible.”
The prices of chemicals, such as herbicides, pesticides and fungicides, are likely to be a mixed bag. For the most part, chemical prices will be up slightly – about 1 percent, according to Miller. The exception is herbicide, where prices will remain flat.
Prices for fuels commonly used on the farm currently are expected to be down in 2014. The costs for both diesel, which powers most farm machinery, and propane, which farmers use to power grain dryers, could be down by about 4 percent.
Fuel prices, however, can be among the most volatile costs farmers encounter each year because much of it is imported. While an increase in domestic energy production has helped thwart major supply disruptions, Miller said tensions abroad could affect what farmers pay for fuel in the U.S.
“We have to be a concerned because of the unrest in the Middle East,” he said. “It could quickly change the fuel-price outlook.”
Source: Purdue Ag Communications