Sep 30, 2014
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Inputs Insights

RSS By: Davis Michaelsen, Pro Farmer

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

June In Review: Capture Savings Amid Lagging Corn Futures

Jul 05, 2013

weakcornI woke up the other day and realized June had come and gone, already -- where does the time go. The weather has finally straightened out and the spring soak has come to an end. The result is a wide variety of crop conditions between the fencelines. Much like last year, yields will vary strikingly as areas of strong growth are flanked by watered out plants.

USDA has raised its planted acreage figures in a surprising display of ag-optimism. December corn futures now sport a $4 handle and while revenue prospects at this level are short, I wouldn't pack up the kids and move to the city just yet. If you are an intentional marketer, and can time purchases just right, lagging corn futures can be offset by low input costs for next year's crop.

I've referenced it many times, but 2008 showed us that fertilizer will follow corn, and while nutrient falls off more slowly than does corn after a rally, it also lags the front end of a rally, however slightly. That will be our opportunity to take advantage of weakness in corn futures, and weakness in inputs. The truth is, weakness in Dec corn signals downside action for nutrient, and with urea, DAP and potash in a state of global oversupply, the cards are stacked in favor of buyers. Lagging futures prices coupled with plenty of product from a variety of sources could set off the 'perfect storm' of inputs discounts.ZCZ13 7 5

July will find many suppliers setting fresh pricing points as they make ready for fall. We will watch these numbers closely, and now that the Monitor has a full year of data to rely on, we can really start to dig into the trend. Corn will rally. When, I don't know. At some point, the reality of the yield potential will catch up to the market and should contribute to higher returns. But experts have predicted a downturn in commodity pricing in general for the next few years. That means returns may be limited for awhile, making every dollar spent count.

We have issued preliminary price targets for the coming year for nutrient and for farm fuels. For a look at where we believe pricing is headed in the coming months, give those articles a look. These pricing projections are early, but are the result of much consideration and guidance from industry experts, as well as our own data. We will revise these numbers as the market dictates.

The table below compares retail inputs pricing as collected by your Inputs Monitor from the first week of June '13 to the first week of July '13 and includes math for year-on-year.

 
Anhydrous
DAP
MAP
Potash
UAN28
UAN32
Urea
6/3/13
$869.07
$632.60
$649.52
$579.29
$400.86
$438.54
$563.51
7/1/13
$859.57
$628.58
$648.48
$580.50
$399.31
$444.20
$553.30
Month-over Change
-$9.50
-$4.02
-$1.04
+$1.21
-$1.55
+$5.66
-$10.21
7/6/12
$794.92
$685.00
$659.08
$633.05
$411.83
$503.50
$717.75
Year-over Change
+$64.65
-$52.40
-$10.60
-$52.55
-$12.52
-$59.30
-$164.45

As you can see, the month-over data suggests a bear run for nutrient in progress, and while the year-over comparison includes some strong moves to the downside, the expectation is for resupply to set new, lower pricing points this month.

Analysis --

Anhydrous posted the only gains year-over adding $64.65 in the last twelve months, but in June, NH3 softened $9.50/ton in the regional average suggesting a fair amount of downside potential here. Also working in favor of lower anhydrous pricing is the notion that end users may still have some anhydrous credits in place at suppliers as the weather did not allow iron in the field in some locations, and a certain amount of NH3 just didn't make it out of the nurse tank. This may be interpreted as weak demand from suppliers upstream and put downward pressure on NH3. But anhydrous remains the least expensive form of N at 52 cents per pound of N.

All other nutrient fell over the last year. Phosphate trailed on robust supply and production supported by strong applications in the Corn Belt in '11 & '12. This is also viewed from upstream as softening demand and while producers will continue to churn out product at current levels, pricing expectations are at or below the present day.

Potash threw a fit -- a dollar move constitutes a fit for K -- during the month of June, but fell year-over by a respectable $52.55. This was fueled by China's pricing point set by a hold-out on Canpotex which was supported by supply via rail from FSU sources. But the FSU has announced curtailments on K shipments to China and Canpotex member PotashCorp has slowed production to gnaw away at the current 20% oversupply. These features may hold potash in place with more downside potential than upside risk. But with a product that throws fits in increments of just a few cents at a time, we do not have much concern over K pricing taking off on us.

Perspective --

Moving forward, we expect a general softening for nutrient by fall. This does not mean that the expectation is for a constant downward track, in fact, we suspect it may take some fishing on the part of suppliers to find pricing points that work for both end users and retailers. Corn will continue to hold sway, but as fertilizer chases corn revenue, growers who find the right opportunities to book fertilizer and fuels for the coming year will probably find favorable pricing amid a complacent environment for commodity investment. If traders think things are going too well for the crop -- and they do right now -- December corn will continue to languish at low levels. But watch out for negative data either out of USDA or Wall Street to inject unexpected strength into December corn futures, signaling upside risk for nutrient.

Uncertainty can fuel volatility. But the uncertainty we currently observe is translated into apathy for commodities as traders focus elsewhere to chase profits. But Pro Farmer's Crop Tour could really strike a blow to market assumptions and if negative yield data is reported during the August count, expect a rally in December corn futures, shutting off the opportunity to book inputs in a lagging corn futures climate.


 

 

 

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