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Farmers are getting ready to harvest the most expensive crop they’ve ever planted. Most, if not all, inputs were more expensive, from fertilizer to fungicide to fuel.
Thankfully, farmers have solid commodity prices as we head to harvest, with fall cash corn bids better than $6 per bushel, and soybean bids still in the teens. Those prices certainly aren’t guaranteed for next year’s crop, but one could be much more certain about the prospects for higher inputs.
Trying to make sense of fertilizer markets has been “folly” the past couple years, said Sam Taylor, Rabobank’s top input analyst. “The easiest way to look at it is not actually to be too deterministic on what the price is going to look like, but look for some leading indicators as to the direction, particularly when you’re looking to make the purchases.”
Taylor said “alarm bells should be ringing” regarding some nitrogen fertilizers, when considering natural gas prices. Prices are plenty high in North America, but in Europe prices are three times higher, if not more. Those prices will naturally curb production. “We’re in that moment where we’re seeing North American producers of nitrogen raise prices quite aggressively over the last few days and weeks to reflect this curtailment in Europe.”
From a seasonal perspective, price hikes are to be expected. But not to this extent. He says a normal hike from August to December would be 20-30%.
“What we have now is day-to-day price rises, not on a contiguous basis but one geography to the next, where they can be 15%, so that’s a very big chunk of that happening in a very short period of time,” he said. “From a global perspective, we have a need to backfill the lost production in the European market, and we had this this time last year. So, we had prices rising pretty aggressively, parabolically, when you have the natural gas price being what it was in November-December of last year in Europe. It’s materially higher now than it was then, and it’s also at an earlier stage. With the uncertainty of how that looks going forward, we could have a slightly prolonged environment of curtailed production in Europe, tightening the global balance sheet quite significantly between now and decisions needing to be made next spring.”
Taylor also expects higher seed costs for next year’s crop, perhaps even a double-digit increase.
“Seed companies have to bear all the cost inflation … the inputs, the chemistry, the fertilizer … that a grower does in their own production of the seed. And this tends to have a lagged pass-through to growers,” he said. “We’ve seen seed pricing statistically trail the value that it creates, which is a function of yield times underlying commodity price. The other thing is that seed is less dynamically priced through the season. It’s priced once, maybe twice a year maximum.”
Taylor says seed costs can also be “sticky,” meaning they’re more likely to stay in place compared to other input costs.