The News & What it Means – Rising Fertilizer Prices Add to Farm Cost Squeeze

By John DePutter & Dave Milne – October 24, 2018

 

The news:

“For the fifth week in a row, all eight major fertilizers were higher (in price) compared to a month earlier.”

– DTN, Oct. 17, 2018

 

What it means:

The uptrend in fertilizer prices is just one small piece in a bigger story: rising costs on the farm.

 

Fertilizer prices have been on the rise for many months. And it may well be that things don’t get any better from here from a cost perspective.

 

The delayed harvest across Western Canada means that relatively fewer producers there are likely to get the opportunity to apply much fertilizer this fall, pushing more demand into the springtime, when prices typically strengthen seasonally anyway. The same goes for the US, where a wet couple of weeks has slowed the corn and soybean harvests.

 

In the US, it is expected farmers will plant substantially more acres to corn – a high input crop – due in part to the ongoing trade war with China that has gutted soybean prices. Those additional corn acres could lead to more demand for fertilizer which in turn could add more lift to the ongoing uptrend.

 

Input costs up in Ontario and across Canada

It’s not just fertilizer that’s costing more these days.

 

The latest survey of farm input prices by the University of Guelph’s Ridgetown campus confirms that Ontario farmers are running into higher costs on several levels.

 

Conducted Oct. 3, the survey found that fertilizer prices in the province were up about 1% from the time of the last survey on Aug. 1. And not only are fertilizer prices rising, fuel and pesticide prices were higher as well, both from Aug. 1 and a year earlier.

 

That same general trend higher in input costs was confirmed by a report from Statistics Canada earlier this year that showed total farm operating expenses (after rebates) were up 2.4% in 2017, marking the seventh consecutive year of higher costs. Although StatsCan found fertilizer prices were actually down 3.8% from the previous year in 2017, other expenses rose more than enough to offset.

 

With the potential for fertilizer to join the list of rising costs this year, it seems likely farmers will be forced to sharpen their pencils even more in 2018 – even if it means taking a chance on lower yields.

 

Cost:price squeeze

The spiking grain and oilseed prices enjoyed back in 2008 and again in 2012 are long gone and crop prices are trading in lower ranges now. So the problem for farmers is, they’re paying more for inputs and not getting more out their crops.

 

A western Canadian farmer recently commented that his borrowing costs are creeping up, as interest rates rise. He added that machinery costs are up sharply and so are parts.

 

“The local dealership wanted to charge me $353 for just one bearing,” he complained. (He found one for less but used this as one example of a small item going up, along with the big-ticket items like combines.)

 

It all tallies up to a problem he said: Rental prices have been rising with other costs to the point where “marginal rented land isn’t pulling its weight.”

 

How to cope? When costs are up but crop prices are not, it’s more vital than ever to be a good marketer of grains and oilseeds.

 

Aiming to sell crops in the upper part of the marketing year’s trading range, while avoiding sales during the low spots, can make a big difference in net profitability.

 

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