Do fertilizer and grain prices make you feel like Chicken Little?

While sipping a coffee and reading some weekly publications last week, I reluctantly came to the conclusion that fertilizer and grain prices are going to take us on a wild ride in 2019.  I know it’s still 2018 and some don’t even have the crop off yet.  I don’t traditionally put myself in the “Chicken Little” camp, but there were two FCC articles in particular that caught my eye.

The first article talks about a worst-case new bottom in the wheat markets.  Prices are impacted by estimates of record high ending stocks and high exports from the Black Sea region.  The second article tells us to buy fertilizer early (aka now!) because the supply and demand imbalance could see prices go up as much as $7 -$8 an acre.

Put those two together, and you just might think the sky is falling.

And on top of it all, that little stunt mother nature pulled this fall probably messed with what was initially looking like good quality crop.

When you go into 2019, there is a good chance that your wheat revenues will be down because of the markets.  At the same time, you should expect bigger than normal increases in fertilizer costs.  Now that is a bad combination.  Be mindful that this scenario rests on the assumption that this year’s crop revenue provides the cash for next year’s inputs.  If you’re not in that situation and have or use extended term financing for inputs, things might look different.

Pre-buying fertilizer

Historically, pre-buying fertilizer is the best way to mitigate price inflation.  In the last ten years there was only one spring inversion that I recall.  For the most part, fertilizer prices increase in spring simply because of the old economics of supply and demand.  So, if prices are expected to take a big leap in 2019, it’s even more important to pre-buy this year.

Maximizing your wheat revenue

If the fertilizer predictions come true, in 2019 more than ever you will need to be sharp on the pencil for your revenues.  How do you maximize revenues for what’s in your bin?  For those who have had mother nature deliver a weather blow this harvest, it gets even trickier.

To make the most of a bear market, I would strongly advise that you get more offers, understand what the market is doing in your area, and look for niche opportunities.  If you normally sell to 4 or 5 buyers, I would say this is the year to extend that list with an additional 4 or 5.  And let’s face it, time is a factor.  How do you reach out to new buyers, review more offers, and be efficient about it?  There are tools that help with that, and CXN360 is definitely a leader in this area.  With CXN360 for example, you could connect with those 4 or 5 new buyers and start to receive offers.  You can compare those with the offers you get from your traditional buyers and get a better sense of what’s happening in your area.  And the buyers on the system are very diverse so there may be niche buyers who present a different opportunity to sell grain.  We talk a bit about how those opportunities fit into your grain marketing in a previous blog, that highlights post-CWB marketing changes.

This might also be the year that you take a more proactive approach to selling.  A system like CXN360 actually lets you extend your targets (asks) to buyers.  So, you set the details based on the price and terms you need and see if there are buyers who come on board.  The technology works so you can extend an offer to multiple buyers without risking over-contracting.  It’s a great tool for when you’ve been monitoring your local market, but aren’t seeing quite the right offer or when you have grain that is a lower quality that you aren’t seeing offer for.

I think farmers are an optimistic bunch.  They have to be because let’s face it, every year presents a new combination of scenarios that spell a difficult year ahead.  But, 2019 seems to be threatening some real issues with cash flow and balance sheets.  The sky isn’t falling, but it’s still best to have a full toolset ready for the rough ride.

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2018-10-05T19:52:13+00:00

About the Author:

Born and raised in Viscount, Saskatchewan, Mike is an agricultural professional with twenty years experience in grain handling and crop inputs. Mike is active in his community and works hard to share the positive side of agriculture with those outside of the industry.