Prices for urea, phosphate and anhydrous ammonia are all at the lower end of their normal range
Fertilizer prices have seen some ups and downs over the past six months, but the situation heading into winter looks favourable.
“When we look at the overall input markets so far in 2020, we see that they’ve kind of eased up. For producers right now, that’s a pretty good spot to be in,” said Craig Klemmer, principal agricultural economist at Farm Credit Canada.
“With input prices moving sideways or declining, I think that sets us up for a pretty good year moving into 2021.”
Demand for fertilizer typically dips in the fall, but nutrient prices have been driven lower than normal. Right now, prices for urea, phosphate, and anhydrous ammonia (nitrogen) are inside the lower third of the five-year average price range.
“Urea and anhydrous prices are at levels that haven’t occurred since the fall of 2017 to the fall of 2018,” said Ryan Furtas, market analyst with Alberta Agriculture and Forestry. “Phosphate prices are nearly at a five-year low. To see similar prices, you’d need to go back to the fall of 2016 to the spring of 2017 when prices were only just slightly lower.”
And when combined with the increase in grain prices, it’s a “fairly good news story for producers,” said Furtas. A common metric is how many tonnes of milling wheat needs to be sold to buy a tonne of urea, nitrogen, or phosphate.
Right now, the ratios are pointing to a “solid purchasing opportunity.”
“All three fertilizer products have a ratio below the five-year average, with phosphate and anhydrous doing slightly better than urea,” said Furtas. “Considering grain prices and where the fertilizer price is right now, it’s favourable for them to purchase now and lock in a price for their fertilizer.”
That could change as the typical wintertime seasonality comes into play.
“Often around this time of year, in November and December, you might see them give up a little bit here just on that seasonal demand as people are looking to pre-buy inputs or make decisions about the 2021 year,” said Klemmer.
“If we see stronger demand this year and into 2021, that could bump up prices, especially as we start to get closer to seeding.”
Logistics could also drive the price up, particularly if COVID forces further lockdowns in Canada and the U.S.
“Once we get into the new year, it becomes a logistics game — especially for phosphate,” said Garth Donald, manager of agronomy and co-founder of Decisive Farming. “The majority of our phosphate is coming out of the U.S., so it’s all about how long it takes to truck it up from there.
“The later it goes, the more they know that growers need it, so the price goes up.”
Closures of production plants as a result of COVID could also be an “unforeseen factor” this winter, he added.
“That could be a possibility within the fertilizer industry in some of these plants,” he said. “There’s not necessarily as much hands on, but it’s not automated either. They need those employees to be able to produce the product. If they get shut down, delays in manufacturing end up being problematic for growers.”
So far, that hasn’t happened.
“Companies have been increasing capacity where there were some declines in the past,” said Klemmer. “The supply chains have been functioning relatively well from what we’re hearing so far.”
The risk seems lower than it was in spring, he added.
“Last spring, there were so many uncertainties,” he said. “We saw a lot of disruptions to movement of products and to manufacturing and production. But the shipment and movement of goods around the world is shifting as best it can given all these challenges.”
Even so, producers might want to be “a little more prepared than usual” this winter, said Furtas.
“Going into spring, they might want to have their fertilizer lined up a little bit more than usual just in case there are some hiccups,” he said. “COVID is the big X-factor out there, and there might be some issues. So far, we haven’t seen that, and it didn’t occur last spring either, but that’s always a possibility.”
“If you have the storage and the ability to keep product on site, that’s your best bet.”
Stick to the plan
But also soil test to find out just how much fertilizer you really need, he added.
“In some parts of Western Canada, they had fertilized for a higher yield goal and did not achieve that,” he said. “Due to some of these crops not performing, there are leftover nutrients within the soil in certain locations. Knowing that, there’s no point in over-fertilizing.”
Swinging for the fences can also be a mistake.
“Twitter has become the virtual coffee shop. Guys are looking at 115-bushel canola up in Westlock or 110-bushel wheat in Saskatchewan and thinking, ‘Well, I should be able to do that,’” said Donald. “But in southern Alberta, the fuel light is on with regard to water. We have a very low residual moisture situation around here. So planning to hit this big yield goal with the current conditions we have isn’t always realistic.”
It boils down to understanding the nutrient requirements of your crop plan.
“We know that the oilseed side of our business is a higher pull on nutrients than, say, some of our cereals,” he said. “If fertilizer prices get too high, they may look at pulses where they’re not needing the nitrogen.”
However, that doesn’t mean tossing a plan out the window, he added.
“You have a plan for a reason. It’s about longevity. No one’s in this to farm for one year. They’re in it for the long haul. That’s what your plan is all about — looking at it as a long-term investment.”
That’s even more important in an uncertain year like this one, Klemmer added. With all these different variables at play, a solid plan can help you manage cash flow and purchase inputs when the timing is right.
“Really, it’s about having that long-term strategy for your business and then executing when those opportunities are there,” said Klemmer.
“Something like COVID, you could never plan for, but when you have a long-term business plan, you have a strategy to fall back on. Trying to chase the markets isn’t usually the best idea.”