It’s a volatile and unpredictable world. For agriculture, that means there’s big money to be made or lost.
In recent years, grain prices have shown the ability to rise rapidly and fall back even faster, but the input side of the business is volatile as well.
Just look at fertilizer prices. Urea, 46-0-0, has increased by roughly $300 a tonne in the past couple months. If you waited until just before seeding to buy, you’re faced with a price tag in the $900 a tonne range.
Failing to buy early has been a costly mistake this year. On some large operations, the price difference adds up to $100,000 plus. The cost of extra on-farm fertilizer storage could have been paid almost entirely by this one-time price rise.
Fertilizer has long been prone to price gyrations, but a 50 per cent increase just before seeding is amazing. Of course, hindsight always has perfect vision. Buying early isn’t always the best choice.
In the late summer and fall of 2008, many analysts were predicting a continued rise in fertilizer prices that were already record high. If you didn’t buy now, the price was going to be even higher in a few months, if you could get any at all.
Some producers bought high-priced fertilizer, but didn’t lock in the correspondingly high new crop prices that were also available, particularly on canola. When grain and oilseed prices dropped, fertilizer eventually followed. Trying to be proactive and ahead of the curve proved costly if you didn’t have both sides of the equation covered.
We used to think that nitrogen was closely correlated to the price of natural gas, its main feedstock. In recent times, we’ve learned that fertilizer supply and demand governs the price irrespective of manufacturing costs. To a lesser extent, this is also true for gasoline and diesel.
And we should no longer take the supply of anything for granted. As a major oil producing and exporting nation, it’s logical to assume that we’ll never have a domestic petroleum shortage. However, in the past six months, diesel has sometimes been rationed at card lock stations.
A diesel shortage has never been widespread at seeding or harvest, but a problem at a refinery or some other hiccup in the supply chain could leave farmers scrambling during the growing season.
Despite modern communication and world-wide trade, there seems to be more shortages of the common items needed to run a farm. For instance, it can be difficult and time-consuming to get certain sizes of farm implement tires.
And it’s dangerous to assume that a particular herbicide, fungicide or innoculant is going to be readily available just when you want it. Recent years have seen product shortages of everything from Reglone to glyphosate.
It’s a global economy with every event having far-reaching ramifications. Major international companies crash and burn, nations teeter of the brink of bankruptcy, and political unrest disrupts trading patterns. On top of this, superimpose natural disasters like earthquakes and floods.
Traditionally, we’ve worried about grain prices too low to cover our costs of production. In the future, we may have to decipher the ramifications of crop prices that occasionally spike to dizzying heights. While that may sound like farmer utopia, sky-high grain prices cause all sorts of ripple effects that create winner and losers.
The only safe prediction about the future is that volatility will continue and probably increase. Planning ahead and keeping an ear to the ground has never been more important.