Book 2010 fertilizer this summer…seriously
Farmers who bought fertilizer last summer and fall may act like a kicked puppy when it comes time to price product ahead for 2010 and beyond. But with wholesale fertilizer prices on the decline, it's time to get over it and bite back, says Farm Journal Economist Bob Utterback.
"My feeling is very strong that we're putting a low in this crude oil market in the $35 to $40/barrel level," he says. "The bottom will arrive in midsummer and we'll start an upward thrust in crude oil, contingent on how fast global economies recover."
With an expected decrease in corn acreage this year, it's possible acres could rebound in 2010, putting strain on fertilizer supplies, he says. Fertilizer producers can increase profits with lower volume, he says, so there is little incentive to keep production up. He assumes fertilizer demand in China will remain strong, particularly for potash and phosphate.
With tighter margins, Utterback says, "You have to start integrating crop insurance, options and futures into an organized plan so you know how you're going to operate six months to a year out if a price event does come to you." —Greg Vincent
Markets set to grind lower
Of the advisers we track, EHedger has the most cash sales on the books: 45% each for corn and soybeans. "We started selling when the market went into panic mode with late planting last spring," says Justin Kelly, president. "With corn futures hitting $7, it seemed demand destruction was inevitable. At the same time, rumors began to circulate that elevators were going to stop making new-crop bids. So we sold about 25%." They added to sales when elevator bids came back on line.
"Now I think we're going to grind lower and there's a good chance cash corn could drop below $3 again and soybeans below $7," Kelly says. "Farmers are holding a ton of grain that may cap rallies as they sell. Hedged or owning put options is the place to be until prices are cheaper and end-user margins improve."
Grab the carry
- MARCH 2009