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December 2012 Archive for Inputs Insights

RSS By: Davis Michaelsen, Pro Farmer

Inputs Monitor Editor Davis Michaelsen adds his perspective into the happenings of the inputs markets.

Miles & Miles of Monitor -- The Changing Face of Ag Retail

Dec 28, 2012

The Pro Farmer Profit Briefing Seminar Series paid a visit to Illinois in it's third swing, and both meetings found the Inputs Monitor focused on the relationships between growers and their local retail outlets. As I have said before, the fertilizer game is changing, and along with it, buying and selling habits are changing as well.

Inventories at local co-ops are much smaller than they used to be and are, therefore, more subject to market price fluctuations. So a balance must be reached in which both the retailer and the grower can manage a profit, creating a mutually beneficial relationship based on accurate pricing data, informed decisions and firm handshakes.

Quincy --

Why farmers buy fertilizer where they do is usually based on two factors...proximity and long standing relationships. The length of time a grower is willing to spend on tractor rides to and from the co-op has historically been a top determining factor on where grain is sold out of the bin. That threshold determines long-term grower/retailer relationships and these are vital to the farm economy.

You have always dealt with 'Frank', and you want to continue to do so. 'Frank' has always counted on you as a customer and he would like to keep it that way, too. So when growers go to their local, tried and true co-op with a price in mind, retailers will often work to satisfy their an american lets shake on it 4

Growers should not hesitate to ask for a lower price, if available pricing data shows room locally to the lowside. This is where your long-standing relationship comes into play. To simply say, "I see they have DAP for $20 less per ton a few counties you have any room for that?", will not offend a seller. In fact, when resupplying, that same retailer probably had a similar conversation with his supplier.

The worst your dealer can say is, "I'm sorry, I don't have any room to wiggle here...the posted price stands." Given that, the deal can proceed with a hand shake and a surety on the part of the buyer that the bottom dollar deal has been struck. But if there is room, a $20 savings a few counties over may inspire a $10 per ton discount at your local spot -- and that can quickly add up to a savings of thousands of dollars.

Rock Island --

An Illinois retailer and I were talking about the service the Inputs Monitor provides. I had mentioned in my presentation that knowing the pricing data in and around one's own crop district can really give a grower some leverage when booking inputs. The retailer said, "It sounds like you think co-ops are trying to pull a fast one on farmers...I just don't always have room to wiggle on prices."

I quickly sequestered myself to listen intently to my own words on tape. Let me assure the retailer that the Monitor stands to assist the grower and the retailer by helping each maintain positive, profitable relations in the changing environment of fertilizer pricing.

Transparency in the new era of fertilizer is good for everyone involved. The end-user can be assured he is garnering a reasonable market price for nutrient, based on updated local pricing data. The retailer can be assured their prices are in line with what growers are willing to pay for fertilizer and farm fuels, and make strategic purchases with greater effectiveness when resupplying inventories. In this way, upstream suppliers can be held to account by retailers who are armed with the same pricing data.

"These are not simple markets anymore," the retailer explained, "Co-ops just don't want to warehouse as much nutrient as they used to." -- and that is wise.

A number of nutrient retailers got hung out to dry when fertilizer pricing chased the price of corn to the upside in 2008. With a lot of inventory overhang and a pricing spike followed by a sharp dropoff, some went so far as to have to close up shop. As a result, co-ops are much more market savvy on inputs in the present day. Upstream suppliers are slowly becoming more transparent in regards to production and stocks on hand, and if retailers and end-users are unified and similarly educated on these factors, the fertilizer pricing revolution will reach to the highest levels of the industry.

In the short-term, U.S. nutrient pricing -- N especially -- will be dictated by transport costs. But moving forward, retail outlets will soon have much greater flexibility in suppliers. Domestic N will increase to net exporter status in the next six-or-so years based on new production facilities and numerous N production expansions -- 90% of U.S. Phosphate is already domestically produced -- up to 90% of the K spread in the U.S. is imported...mostly from Canada, which isn't so bad, but domestic Potash production is showing upticks as well.

This means the move toward a more market savvy co-op will hold upstream producers to greater market accountability, and ultimately help downstream retail outlets profit alongside the grower. Everybody wins through transparency. And after all that, if your retail outlet has no room to wiggle on price, it is likely because the dealer's best deal is already in place, and the savings have already been added. In that case, a firm hand shake will close the deal with both sides maximizing their profits, and the time honored grower/retailer relationship will continue to benefit both.

Photo credit: ClaraDon / Foter / CC BY-NC-ND

Miles & Miles of Monitor -- Pork Rinds, Rupees & Natural Gas

Dec 21, 2012

As your Inputs Monitor proceeds along the Pro Farmer Profit Briefing trail, I found, once again, that growers had just as much to share with us, as we did with them. Our second swing found us in Tunica, Mississippi and Columbus, Ohio.

Tunica, Mississippi -

After sampling some terrific Memphis Barbeque and pork rinds, I was anxious to get serious and focus on the farm. Mississippi growers were glad to see us roll in again after not passing through for a few years, and we were equally as glad to speak with the good folks down south. The Inputs Monitor Index does not yet include the southland, but as we move forward, the next region we plan to add to the Monitor's coverage is the delta area. Given that, I was very interested to see what was on the minds of growers there -- turns out, it was corn.

A number of southern cotton-growing farmers are seen making a switch from cotton acres to corn. In fact, much of the cotton grown in Mississippi has moved eastward as corn acres replace acres of cotton. One grower lamented the decision saying, "these guys want to sell out of cotton and switch to corn, but if they change their minds, it's going to be expensive to switch back - real expensive."

What was most enlightening to me was the level of interest in international factors affecting inputs pricing here at home. I told the story of India's addiction to Urea where the nutrient has become something of a catch-all. The government of India subsidies Urea and that has made Urea the only nutrient farmers there can afford in any great measure. The Rupee continues to weaken in India, and with little relief in sight, the government there is stuck with a subsidy quandary that has them struggling.

It would seem that the government there can only afford to subsidize one nutrient at a time. So if the subsidy switches away from nitrogen, say in favor of Potash, the soil will be no better for it, as the profile would find itself lacking nitrogen within one growing cycle.

This will continue to pressure worldwide Urea stocks. Without a broad spectrum nutrient application profile, Indian yields will not improve, and farm revenues will continue to slide along with the rest of the Indian economy. And if much needed monsoon rains do not arrive, there will be no relief from the trouble on Indian farms.

Columbus, Ohio -

The good folks of Ohio turned out in good numbers to take part in the seminar series and the group was excited to hear from Chip Flory. After I presented my thoughts on the outlook for fertilizer and farm fuels in the short and long-term, a grower approached me, shook my hand and introduced himself.

He said, "I've got an idea you may not have thought of." Not only did my ears perk up, but so did a few others nearby. "I saved 60% on dryer costs last year by switching from LP to natural gas."

This is a great idea, and sources back at the home office agreed - conditionally. There would be an added expense for switching from the industry standard, LP to natural gas, and adjustments would have to be made over time to maximize efficiency. The other caveat is the availability of natural gas from local distributors.

A retail source close to home agreed saying, "...the savings are definitely there -- the problem is getting the natural gas to the dryer."

This is an idea out of Ohio that is worth looking into. A 60% reduction in dryer costs ain't peanuts, and with the inputs game quickly becoming one of strategy and piecemeal savings, this is one way that some producers might be able to save some money from year-to-year. (Read more here on making the switch.)

It was a real treat to visit growers in Mississippi and Ohio and your Inputs Monitor was glad that you all (that's - y'all - to our friends in Tunica) took the time to attend our Profit Briefing Seminar. We still have a few more stops to make this winter and we hope to see y'all there.


Miles & Miles of Monitor -- Lessons From the Road

Dec 13, 2012

ProfessorDYour Inputs Monitor is a part of this year's Pro Farmer Profit Briefing stable of presenters, and as I have traveled to meet with growers, a number of important lessons have been learned. The Monitor is a brand new offering from Pro Farmer and is steadily growing in knowledge, and finding it's value on the road. The Profit Briefing series has given me, your Inputs Monitor Editor, a chance to speak face-to-face with Monitor subscribers, and Pro Farmer members, and find out just what the Monitor can do for growers in the soil.

Our first stop was in Lincoln, Nebraska where a great group of growers turned out to hear Pro Farmer staple speakers including Mike Walsten, Roger Bernard and Brian Grete -- may I say how humbled and proud I was to be along with these great ag thinkers. I arrived in Lincoln with high hopes of guiding the subscribing public through the Monitor and showing its use. As it turned out, the opposite happened, and it was I who was educated -- gratefully.

"It ain't your grandad's fertilizer anymore," a grower from central Nebraska started. "Grandad would just pull up to the elevator, load up, apply liberally and hope for the best. But it don't work that way no more. The game has changed."

Fertilizer has attached itself to the price of corn in a way that hasn't been seen before, and the result is a decline in stocks on hand at local co-ops, and wild pricing swings. Fertilizer got the taste of corn money in its mouth and has since been like a Tiger who has tasted blood, and can't get enough.

When new-crop corn prices run to the upside, fertilizer prices follow to capture expected new-crop revenue. But once nutrient pricing moves above 18% of expected new-crop revenue, it finds resistance as total nutrient package costs near one-fifth of potential revenue per acre. That is when prices fall to establish fresh support -- which is typically around 16% of expected per-acre new-crop revenue. Then farmers again become willing buyers of nutrients.

This became even more clear as we rolled into Ankeny, Iowa on our next stop and with a new appreciation for fertilizer's teeth in the market. With the Inputs Monitor's weekly updated pricing data coupled with Pro Farmer's coverage of futures markets, one can watch the movement of futures and fertilizer pricing and book purchases based on solid information.

A lot of growers will save in a bullish nutrient market by cutting back on P&K, and that can help save a little money in the short-term. But if that practice continues, over time, the nutrient profile can lose its balance, and suddenly, P&K are 'gotta have it now' items, regardless of the price.

While grandad had the luxury of stable nutrient pricing and ample supply in co-op storehouses, the stability of the good-old-days is gone along with retailer inventories. This makes it vitally important for the grower to know how and when to pull the trigger and book a purchase.

Pro Farmer's mission has always been to level the information playing field and give the modern farmer the power of information and education. The Monitor proved its worth in Lincoln and Ankeny by putting the power of updated pricing and weekly analysis of price movements in the hands of subscribers.

I am grateful for the opportunity I had to interact directly with farmers in Lincoln and Ankeny. Thank you to all who came out. The lessons these fellas taught me will help the Monitor continue to be a friend to the farmer into the future. In return, the Monitor is better equipped to level the information playing field, and maybe even tip it in favor of the American grower.

This year's Pro Farmer Profit Briefing series has a lot more stops coming up, and the Monitor will be there for all of them. Consider joining the Pro Farmer presenters you already know like Chip Flory, Jim Wiesemeyer, Mike Walsten -- and me, your Inputs Monitor Editor, at a stop near you. See you there.

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