Input Costs Are On An Upward Trend

Input Costs Are On An Upward Trend
Timing big-dollar input purchases is always important, but this year it could mean the difference between saving some dollars or breaking your budget. Here’s a look at what you can expect to happen with input prices between now and spring.

Fertilizer costs will see a significant increase for the first time in six years. Gary Schnitkey, University of Illinois (U of I) ag economist, expects fertilizer prices for corn to increase $15 per acre in 2019 and for soybeans, $5 higher. The increase in fertilizer prices ends a run of decreases that began in 2012.

“Price declines could occur [in 2019] but should not be expected,” Schnitkey cautions in a recent issue of farmdoc Daily e-newsletter.

“Fertilizer prices have been in decline for a good six years now, which is significant, but our average fertilizer price climb is [now] above the three-year average,” says Davis Michaelsen, Pro Farmer Inputs Monitor editor. Because bad weather kept combines out of fields last fall there’s opportunity for fertilizer demand to erode, which could mean dealers will lower prices to move product.

“The other side of that coin is spring demand will be high,” Michaelsen says. “From current prices, I don’t see much more than a 5% decrease in the offseason, but it could be worth waiting [to book in] January or February.”

As of mid-October, anhydrous was above $500 per ton. Michaelsen anticipates that number could jump to $575 in spring—a 15% increase.

Urea was the “headline story” for nitrogen this past year, says David Widmar, Purdue University agricultural economist.

“After spending most of 2018 at nearly $360 per ton, urea prices recently climbed to $390 per ton. This is the highest observation in more than two years, and well above the earlier lows of $300 per ton,” Widmar says. “Producers with the option of using different sources of nitrogen might find anhydrous ammonia more attractive at current prices.”

Michaelsen says he expects urea will likely continue its upward price move, with about a 15% price increase to $450 per ton this spring.

Look for the price of DAP to also expand, based on current trend lines. “DAP [estimated] prices for 2019 are close to $70 per ton higher and potash prices are near $35 per ton higher,” Schnitkey says. He adds DAP was $506 per ton in September 2018, $80 per ton higher than 2017.  

Michaelson says phosphorus (P) and potassium (K) are unlikely to see sharp spring price increases because they’re already high. He expects, at most, another 2% to 3% jump in P and K costs by spring. Farmers can usually avoid the additional P and K costs by booking at this point in the year.

“We generally see as much as a 10% savings by waiting and booking [nutrients] in the off-season between January and February,” he says.

Fuel prices are harder to predict in the current political environment. There will be opportunity to lock in low prices, but the fuel market could experience volatility depending on the outcome of discussions between the Trump administration and countries such as Saudi Arabia.

“If they [traders] feel good about the market there is nothing to worry about, but at the first hint of bad news or tension [with trade partners in the Middle East] buyers in the futures market drive prices higher, which trickles down to us,” Michaelsen says.

If you’re looking at farm diesel, it’s important to consider it is also used for heating oil, primarily in the Northeast. A harsh winter could push those prices higher on top of anything going on in the Middle East.

“Diesel has been good about taking the crude oil market in stride,” Michaelsen says. “Now, peak season, I’m just a penny above the July price.”

However, volatility could come into play. Some experts are predicting $100-per-barrel crude oil, which could make farm diesel prices jump to $3.25 per gallon, compared with the $2.58 per gallon cost at press time.

Propane prices are also expected to move higher. “We’re looking at a propane price reset about 20¢ higher than it’s been in the past two to three years,” Michaelsen says. “There’s lot of drying and if the forecast turns cold this winter, propane prices will reflect that added demand.”

He says prices could climb as high as $1.60 per gallon—or about 30¢ higher than today’s price. That will likely be in the middle of winter when people have immediate demand. That potential 30¢ jump in the busy season, combined with the 20¢ jump, means buying at the wrong time could be a 50¢-per-gallon misstep.

“We advise, and propane experts advise, you to keep your on-farm storage full,” Michaelsen says. “You don’t want to get where you have to order propane in the middle of the night. Calculate your needs, and fill storage to the top.”

You might need to get creative to lower chemical and seed costs. Experts aren’t expecting major price shifts when it comes to seed and chemicals, but changing management practices could save money.

“When it comes to seed there are three levers that determine how much farmers spend: price per bag, trait technology and how much seed a farmer uses per acre,” Widmar says.

In the past 18 years, corn seed expense increased by 131%, roughly 5.1% annually, he notes.

Soybean seed prices saw significant increases during the same period. “Similar to corn, a significant increase in the per-acre expense and share of total expenses occurred since the early 2000s,” Widmar says. “While soybean seed expense was previously around $25 per acre and 6% of total production expenses, in 2017, it accounted for $58 per acre and 13% of total expenses.”

While exact prices for 2019 aren’t available, USDA found seed expenses for corn and soybeans to be down 1% from 2016 to 2017—averaging $99 per acre in corn and $58 in soybeans.

As for pesticide costs, prices for herbicides, insecticides and fungicides are rising, according to U of I.

Farmers spend more than $12 billion annually on pesticides, according to the most recent data from USDA. In 2000, pesticide costs totaled about $33 per acre but jumped to $73 per acre in 2017. For comparison, farmers only spent $2.3 billion on pesticides in the 1960s. USDA tracks pesticide expenditures, which currently account for 3.1% of total agricultural costs—lower than their all-time high in 1998 at 4%.

Herbicide resistance could be to blame for some of the increased cost, according to farmdoc. But economists caution farmers against cutting corners because weeds and diseases can quickly take a chunk out of yield. “You would hate to go for a low-cost application early in the season and then end up spending more money later with clean-up applications,” Widmar says.

“In crop protection, try to prepay, order ahead and look outside of normal operating procedures,” he advises. “For example, if you normally only do a post, what does it look like with a pre-emergent herbicide? Don’t just minimize a single application—look at the whole picture.”

Widmar’s point: Be strategic with each input purchase when you consider taking advantage of potential discounts. You don’t want to sacrifice agronomics for savings—strike the balance to find success in 2019.

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