As producers look toward the 2018 growing season, inputs are top of mind. Lower input costs could help the bottom line, even as analysts expect little relief in the form of higher grain prices.
Fertilizer costs are expected to be lower than those seen this year, says Gary Schnitkey, ag economist at the University of Illinois.
Nitrogen costs are down from where they were a year ago, and they should stay there through early winter, adds Barry Ward of Ohio State University Extension.
Demand is lower because of commodity prices, which has caused input prices to dip. Additionally, urea has driven nitrogen prices for the past five years, but that market fundamental appears to be shifting, explains Davis Michaelsen, ProFarmer inputs analyst.
“Late summer, tenders to India were at a higher price than at the same time last year, and wholesale markets around the world posted late-summer rallies across the board,” Michaelsen says. He expects urea prices to firm up through the winter.
Market Trends. Phosphorus and potassium prices remain largely unchanged. “Phosphates have been resistant to dip as low as nitrogen prices,” Michaelsen says. “DAP and MAP will remain overpriced as U.S. supplies rely more heavily on imports than nitrogen does.”
Like nitrogen, DAP and MAP have explored five-year lows, according to the ProFarmer Inputs Monitor survey Michaelsen manages. The fall low that occurred in 2016 appears to be a form of support for phosphates, which leads him to believe the offseason will not hold much downside potential for end users.
“There have been some significant supply side rebalancing efforts, which will keep a hard floor under phosphate and potash prices through the offseason,” Michaelsen says. “Potash prices exhibited a rare period of strength ahead of harvest 2017, but world supplies remain bulky, which will inhibit upside risk.”
North American producers continue to trim production of the input in an effort to support higher prices, but competitors in the world marketplace continue to produce with a volume-over-price strategy. “Potash will likely retreat lower after harvest,” Michaelsen says.
There’s no way to hedge fertilizer on the futures market, so the best thing producers can do is to capitalize on inputs when they’re profitable.
“There’s no practical way to lock in fertilizer prices,” Ward says. “The best way for producers to try to manage some of the fertilizer costs is to have some storage they can put some in when prices are at the lower points of the year.”
Limited Savings. Seed costs should remain at similar levels to those seen in 2017, Ward says. New genetics will have additional costs, though there will be some packaging discounts as usual.
Input costs will continue to help the balance sheet into 2018, but the resulting savings might not make too big of a dent in farmers’ budgets.
“Input costs will continue down, but not as fast as our revenue,” Schnitkey says.
Minimize Risk By Filling Fuel Tanks Now
Propane and diesel prices are expected to increase in the short term. That suggests producers should consider buying fuel now.
“Diesel will rise in response to seasonal demand, robust export demand and tightening domestic supplies,” says ProFarmer inputs analyst Davis Michaelsen. “Ruby red followed WTI crude futures to longtime lows, bottoming early in February 2016.”
The overall trend for diesel has been higher since that time. “Expect that to continue through harvest, but we often find opportunities to book for spring just after Christmas,” Michaelsen adds.
As with diesel prices, propane prices have moved higher in response to increasing export demand. That will continue for the foreseeable future, Michaelsen says. “Supplies are generally well-positioned ahead of winter 2017/18, but we recommend users keep tanks as full as possible and monitor onsite storage carefully to avoid delivery delays in the dead of winter should a supply problem arise,” he says.