Sep 20, 2014
Home| Tools| Events| Blogs| Discussions| Sign UpLogin

January 2013 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 -- Balance

Jan 18, 2013

The last two stops on the Pro Farmer Profit Briefing Seminar Series were Lafayette, Indiana and Peoria, Illinois. It was a long, sprawling drive across the Midwest from Cedar Falls to Lafayette. We put on 1000 miles in a lumbering haywagon of a van, but the growers and old friends along the way made it all worth while.

Lafayette, Indiana --

This was great group with important things on their minds. Part of the inherent value of the Inputs Monitor is that it helps the grower avoid making nutrient decisions based on price. My message was not to let fertilizer pricing dictate the nutrient profile in the soil. In a previous blog, I outlined how much per-acre a grower should pay for NPK saying that 18% of expected new-crop revenue is where growers either postpone purchases or make the decision to spend a little less on P&K to ensure enough Nitrogen is applied.

I used India as an example. India uses around 30 million tons of Urea each year but only 4 million tons of Potash. Just about any soil can weather a few years with such an imbalance, but it wouldn't take long before the nutrient profile is completely out of balance. India's imbalance is directly related to price.

A government fertilizer subsidy policy in India so firmly favors Urea that most growers cannot afford to buy anything else. The resulting imbalance is creating dramatic social problems and has contributed to a very high suicide rate among farmers in India. Every eight hours, a grower in India finds himself so burdened by debt in an economy where the currency continues to slip, that he takes his own life.

This leaves farm widows to struggle with that debt with limited job opportunities, young mouths to feed and slim prospects for remarriage. Fertilizer pricing dictates the nutrient profile in India and the consequences are dire.

Here in the United States we have the good fortune of having a variety of safety nets in place to keep farm debt from impacting life on the farm to such tragic ends. But the example does show how making decisions for your nutrient profile based on price can go horribly wrong. The Inputs Monitor stands to keep growers and retailers informed and to help producers make good decisions based on the good 'ol four R's.

Find the right source for your nutrient, make purchases at the right rate and the right time, and put the right stuff in the right place. Now I've taken a few liberties with the spirit of the 4R's here as they are usually thought of in the context of application. But the Monitor is all about helping growers and retailers connect tried and true 'old school' methods, with the power of modern information.

Peoria, Illinois --

I met a man from south of Peoria who had been in the fertilizer business since he was twelve. He took the time to tell me about his first day on the job in the fertilizer industry. "I was twelve," the man reflected. "My first day on the job I cut in anhydrous on a '52 Ferguson with a three blade setup. The rows were long -- had to have been a good half mile from one end to the other. One of the other co-op guys was with me and he'd help me refill my tank at the one end of the plot.

I was turning around at the far end on a run when I saw a burst of white at the other end of the field. As I looked, my refill guy went sprinting across the horizon and dove into a horse tank they had out there. I sped across that field at all of what felt like 2 miles per hour to see what had happened.

When I finally made it to the other end, I found the guy sitting in the horse tank. He wasn't able to talk but he looked pretty bad so I knew I had to get some help. We were out in the middle of nowhere, but somehow, somebody had left a Plymouth parked nearby with the keys still in it. The closest hospital was about 15 miles away and I had the sense not to try the trip on the tractor.

I helped him into the Plymouth and we took off, hell-bent-for-leather with me (a twelve year old kid) behind the wheel. We made it to the hospital and he ended up fine, but he had severe anhydrous burns up his right arm and had swallowed some too...that's why he couldn't talk when I found him.

He had been fiddling with the anhydrous tank, and he lost his balance and hit a valve that released the juice on him. Lucky thing that horse tank was out there. He might have been killed, or worse!"

The man, now retired, was kind enough to let me pick his brain a little regarding NPK. He had been in charge of over 200 retail locations at one point and he reaffirmed that the fertilizer game has changed. All the tricks and tips these old timers have used throughout their careers are only half of what the modern farmer must know. "Back in the day, we didn't have to worry so much about fertilizer prices changing that much so it did make it a little less thing to worry about," the man said.

His advice to the modern grower was "Do not forget what grandad always did. Those guys knew what they were doing and just because they didn't have computers to help, doesn't mean it didn't work. But at the same time, a guy could fall behind nowadays if he's not on top of what's happening and what's new."


I thought I had a lot figured out when I started on the Profit Briefing trail clear back in December. I could not have anticipated how much I would learn -- and how willing farmers and retailers would be to share some of their knowledge with me. I look forward to my next opportunity to address a group of growers. Not because what I have to say is so smart -- it is because of what I have to learn from shaking hands and eating fried chicken shoulder-to-shoulder with growers.

Thanks to everyone who made it out to be a part of this year's Pro Farmer Profit Briefing Seminar Series. Miles & Miles of Monitor taught me the real benefit of the speaking trail isn't when I speak -- it is when I listen.



Miles & Miles of Monitor -- Ammonia, Brisket and Crude

Jan 11, 2013

The next two stops on the Pro Farmer Profit Briefing Seminar Series trail were close to home, but for all I learned along the way, I may have just as well traveled to Tunisia. Owatonna, Minnesota was the first place I saw a real live natural gas pump, and a truck driver happened to be filling up. I spoke briefly with him to find a new appreciation for natural gas as a legitimate (don't say 'alternative') trucking fuel.nattiepump

I had the luxury of spending that night in my own bed as our next stop was only 45 minutes from home. Independence, Iowa was another full house and while I offered my very best rookie insights into the fertilizer industry, including my astonishment at encountering a real live natural gas pump -- $1.74 per gallon by the way -- the hometown crowd had some surprises for me...18% of what?

Owatonna, Minnesota --

An overflow crowd showed up and spilled out into the lobby outside. It was a thrill for me and the other Pro Farmer analysts on hand. The message I convey is the culmination of a ton of research and a very steep learning curve. It is important to me as an individual and a professional to expose as many growers as possible to what I'm on to with this fertilizer stuff. I was so excited, I completely forgot to visit the Cabela's across the parking lot.

A question from the front row was, "...with all this talk of fracking and big crude supply on hand, where do you see crude going in the next five years?"

A great question, and I actually had asked Pro Farmer's Managing Editor, Brian Grete the same question a few weeks before. Here's the long and short of it...a barrel of crude prices itself out of the money around 65-70 dollars per barrel. Chances of seeing crude less than $70 per barrel are slim. At the time the question was asked, Feb 13 crude was around $93.50.

I continued that a range between $80 and $90 would keep everybody happy, and that is where I see crude going in five years. Bear in mind that breakthroughs in technology tend to recur more quickly on the heels of the one before. But, barring some new breakthrough or catastrophe, expect crude to get comfy between 80 and 90 dollars per barrel. In five years, we must consider inflation so let's put it at $85 - $100 by 2018.

Another fellow asked about including the price of water as an input in our index. The question was in the context of the drought, and if water might one day be traded, bought and sold as a commodity or input on the farm. My thought at the time was that a price per unit would need to be assigned to water, which is not out of the range of possibility -- especially given the drought and the general state of the U.S. Treasury. There were a few chuckles from the audience, but the more I thought about it, the more sense the idea started to make.

When I got back to the home office, I researched it. If you think a water tax can't happen, follow this link to see what slipped under the radar of California's voters...CPUC Floats $3.4 Billion Green Water Tax. Take this down the road ethanol is on and you have growers who irrigate buying and selling something like RIN credits for water. In that scenario, count on your Inputs Monitor to be on it like a dirty shirt.

Independence, Iowa --

Another capacity crowd attended the Independence meeting and at lunch, the brisket disappeared so fast one would have thought it was still on legs. Ammonia was on my mind. Nutrient has been falling for a few weeks now, seeking that seasonal low, but anhydrous and DAP/MAP have bucked that trend.

Part of the market pressure on anhydrous goes to expected springtime demand as a number of growers found the soil too warm for application until late in the season, and passed the application off until spring. The other factor is the high price of ammonia. DAP and MAP both rely on ammonia as a feedstock, and high prices in that market coupled with high expected springtime demand has kept many ammonia-based products from settling too far to the low.

I was pleased to receive word that, while ammonia is still high over last year, prices globally took a slight downturn, shedding as much as $20 per ton. Natural gas related infrastructure in Egypt had been a problem along with general unrest in the entire region. India has consumed an average of 30 million tons of Urea annually lately, and a lot of ammonia goes to service that demand.

But product is moving again, and the market for ammonia is beginning to show favor for upstream producers of anhydrous and phosphates. I labeled the market for N in the coming months 'uncertain at best' -- P is uncertain as well, but domestic production should keep that market in check. Remember we still have to get product moving up the Mississippi River, but the Army Corps of Engineers has been systematically dredging and blasting submerged rocks in the river's channel to get barges floating again.

The outlook for the Mississippi isn't nearly as dire as it was just a few weeks ago, and if this arterial shipping lane can support barge traffic again, the fertilizer markets would breathe a lot easier.

Chip Flory was on hand that day and as I finished my talk, I asked him how he felt it went. He said, "18 percent of what?" I knew immediately what he was talking about. 18% is the point where farmers show price resistance when purchasing nutrient. I had explained that part very well, but had failed to make clear what the 18% was a percentage of. The 18% refers to a percentage per acre of expected new-crop revenue. The formula is a little mathy, but here is this cornboy's best shot at making it clear.

Based on Actual Production History -- I use 160 bu. per acre, an average over the five prior years -- and December 13 corn futures with corn/beans basis factored in, 18% of expected new-crop revenue per acre is where growers show NPK pricing resistance. In real terms, considering Dec 13 corn is currently at $5.74, 18% per acre equals $158.11 per acre for your total nutrient package -- not including fuel, electricity or any other expenses...just NPK. Once the amount per acre reaches 18% of expected new-crop revenue, growers will generally either adjust the ratios of NP&K, or wait out the market and hope for lower pricing.

Let's run those figures one more time, figuring Dec 13 corn at $6.00. This puts 18% of expected new-crop revenue at $165.60 per acre. Based on corn futures, this should give you a suitable framework for figuring how much you should expect to pay per acre for NPK.

Another way to look at it is to figure on $1000.00 per acre in new-crop revenue. This puts 18% at a tidy $180.00, 16% at $160.00, 14% at $140.00. NOTE: $1000.00 of new-crop revenue per acre would require the Dec 13 corn price to hit $6.78 -- that's over a dollar more than current futures pricing, but this oversimplified example should give you fair footing for estimation.

Two more stops remain on Pro Farmer's Profit Briefing Seminar Series. Lafayette, Indiana and Peoria, Illinois. I'm looking forward to the trip and to learning new lessons from miles and miles of Monitor. Expect a full report upon my return.



Log In or Sign Up to comment


Hot Links & Cool Tools


facebook twitter youtube View More>>
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by|Site Map|Privacy Policy|Terms & Conditions