Input Costs Shrink

November 12, 2013 06:54 PM
Input Costs Shrink

Take advantage of low prices; book a portion of your needs now

Just as 2014 corn prices are projected to be down from 2013 levels, so are the majority of inputs. However, the cost of seed and natural gas are exceptions.

"We’ve seen steep declines this year," says Davis Michaelsen, Pro Farmer crop inputs editor, who thinks the markets for most fertilizers have hit bottom. "We are significantly lower than we were last year at this time, but the markets have to recover some of that loss. We have to expect slightly higher prices come spring."

Urea led the decline and is about 20% lower than this time last year. Nitrogen in the form of anhydrous ammonia is about $650 a ton, which is $145.25 lower than last year. As we move into 2014, Michaelsen expects a jump to $700 to $720 per ton.

If they haven’t already, farmers should book their nitrogen needs, Michaelsen says. He’s concerned that some farmers might miss the boat because they’ve been told prices will continue to fall. "I think we hit the seasonal bottom as early as September in some states, and prices will start moving higher," he explains.

However, Alan Miller, a Purdue University ag economist, thinks prices could fall to $400 to $500 a ton if U.S. production capacity increases.

Michaelsen is more conservative in his input prices than Miller, who is taking crop demand into account.

"The markets currently say they want more soybeans and less corn in 2014," Miller explains. "This changes the demand for inputs as growers don’t need as much nitrogen if they grow less corn. That will ultimately affect input prices."

Diammonium phosphate (DAP) and monoammonium phosphate (MAP) are expected to continue
hovering around $560 per ton.

From an energy standpoint, the price of farm diesel in 2014 is dependent on winter conditions. "Supply is good and prices are expected to drop, but if we have a really cold winter and people crank up their thermostats, it will eat up supply and push diesel prices higher," Michaelsen explains. "A good target price is $3.25 to $3.30 per gallon. If you can get that, you should book 20% to 30% of your spring needs."

Crude oil is down, and Michaelsen expects to see it stay below $100 per barrel for the near-term. This has the potential to push natural gas prices higher and also puts pressure on LP, he says, noting that when crude goes down, natural gas goes up.

Top Tips

1. Watch 2014 December futures corn contract as an indicator for fertilizer prices. If December 2014 corn breaks $5.50 per bushel, fertilizer prices will move up.
2. Keep an eye on natural gas. If we see a spike in natural gas, fertilizer prices could jump, too.
3. Consider demand. If farmers can’t get their fall work done, more has to be spring applied, likely causing a price response.

percent change

The magic number is 18. "Calculate your per acre expected revenue for the 2014 crop," says Davis Michaelsen. "For example, if you get an average of 160 bu. per acre, take 160 and multiply it by the December futures price. Then, take that number and multiply it by 18%, and that gives you approximately how much you can spend on inputs."


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