Fuel, fertilizer and crop protection products are at discount
Santa delivered a gift card to farmers this year in the form of cheaper inputs, most notably fuel prices. In USDA’s projections, fuel, lube and electricity account for roughly 10% of corn and soybean input costs. The price of fertilizer, which accounts for about 40% of corn input costs, has been weak to stagnant. Protection products, which USDA estimates at about 8% of corn and 16% of soybean costs, also weakened at harvest. All three of these categories are due for seasonal price strengthening, so it might be time to use those gift cards Santa left.
Fuels: December was the sixth consecutive month in which monthly average crude prices fell, dropping $17 per barrel from November’s monthly average to $62 (Brent crude), the lowest since May 2009. The U.S. Energy Information Administration (EIA) forecasts the world benchmark will average $58 per barrel in 2015 and $75 in 2016, with West Texas Intermediate prices $3 to $4 per barrel lower.
However, caution is needed for three reasons:
1. Prices can be affected by supply disruptions or interference.
2. Futures point to significant uncertainty. EIA reports the 95% confidence interval for prices in April is $34 to $76, and by December, it widens to $28 to $112.
3. Low prices cure low prices. Loss of profitability will ration production; already, new U.S. projects are being put on hold.
Gasoline prices have fallen more than diesel: The national average price of gas as of Jan. 12 was $2.139, down $1.188 from a year ago, while diesel was $3.053, down 83.3¢ on the year. Vehicle fuels typically begin to increase in spring, reaching seasonal highs in July. This year, the increase might be less than normal.
So why are fuel prices falling? The reasons can be linked to lagging economic growth in many parts of the world, the end of the summer driving season, less expensive winter gasoline and well-functioning Midwest refineries, says Wally Tyner, energy economist, Purdue University.
Crude oil prices are dropping due to slow economic growth in Europe, China and many other parts of the world. “Even the U.S. is growing slower than expected,” Tyner says.
Slow growth around the world means less demand for the gasoline the U.S. exports, lowering prices here in return, he adds.
In tandem with oil, natural gas production set new records month after month in 2014 and working inventories have risen. To start 2015, they were 9% higher year-over-year. EIA expects the Henry Hub natural gas spot price to average $3.52 per million British thermal units (MMBtu) this winter, down from $4.51 per MMBtu this past winter, based on higher production and stocks and lower heating demand. For the year, EIA pegs the Henry Hub natural gas spot price at $3.44 per MMBtu in 2015 and $3.86 per MMBtu in 2016, compared with $4.39 per MMBtu in 2014.
Propane prices have fallen by 50% to less than $2 per gallon. Retailers such as Hood’s Propane Co. in Oric, Mo., say supplies are ample and, even with the arctic blast that hit in January, were expected to remain steady.
Fertilizer: “Winter is a good time for farmers to look at pricing fertilizer,” says David Asbridge, president of NPK Fertilizer Advisory Service. “Most fertilizers make a seasonal bottom, then bounce along for about six weeks before turning higher into their seasonal peak in the spring.”
A wet fall and a shift to soybeans in 2015 dampened demand, he adds. “We typically can put down a lot of ammonia, phosphate and phosphorus in the fall after harvest. This year, farmers didn’t get all the anhydrous on they would have liked during the fall season. This means more urea and UAN will be needed in the spring.”
In the first week of January, a ton of anhydrous was more than $700; urea, about $465; UAN, $325; and UAN 32, $365. Asbridge expects ammonia to reach $730 to $740, about equal to 2014, and urea to average $525 in the spring, down a little from $540 a year ago. He pegs DAP at $600, about $20 higher than recent prices.
Urea supplies, however, might come under more pressure, as China, a major supplier, is reviewing its pricing system, according to Rabobank. If China adopts a single, flat annual export urea tax, it might increase global supply by 10% to 15%.
Analysis on the ProFarmer Inputs Monitor shows urea to be overpriced by about $30 per short ton. The added supply from China will pressure urea and Chinese-made phosphate prices in the first quarter of 2015.
Potash might also be an exception, Asbridge adds. “When crop prices crashed in 2009, farmers cut back 30% on phosphorus and potassium. Applications were slow this fall, and they might do the same this year.”
“The main issue will be logistics,” he says, reminding that horrendous weather and huge acreage caused spot shortages. “Once we get into the heat of spring, we could find ourselves short on product because of transportation and logistics issues.”
Asbridge reminds farmers that retailers are reluctant to stock up on fertilizer without guaranteed purchases, so they might want to prepurchase fertilizer needs or at least talk to dealers.
Crop Protection: This fall, USDA projected a 2% reduction in spending on chemicals. Given this category’s relatively small role in total cost, that won’t affect the bottom line much, especially as price accounted for about 1% of the 2.8% increase in 2014 while increased use accounted for 1.7%, according to one USDA economist.
Furthermore, in this lower commodity price environment, producers will think twice about prophylactic use of fungicides, agronomists say.
Prices for some popular chemicals at the online clearing house, FarmTrade.com, dropped by several dollars at harvest. Now, some prices are down even more while others, such as glyphosate 41%, are beginning to firm.
Now is the time to lock in a bargain for products you know you’ll need.
1,100 Farmers Share Local Gas Prices
It’s costing less to fill up the gas tank in farm country this year. The average price of gas is $2.09, according to a Jan. 7 Farm Journal Pulse, a text message poll of farmers and ranchers.
Gas prices have fallen to levels not seen for six years, according to AAA. More than 1,100 farmers and ranchers across the country shared the price per gallon for unleaded gasoline at the nearest pump.