A perfect storm of high commodity prices, high feedstock costs, and lower supplies has sent fertilizer prices soaring.
“If you look at where prices are now from roughly a year ago, we’re up in that 25 to 30 per cent more than where we were a year ago,” said Craig Klemmer, principal economist with Farm Credit Canada.
“So many people are in the field trying to complete harvest, and it’s probably not top of mind for everybody right now. So it may be a bit of a shock when people go to buy inputs this fall and they find prices have climbed quite a bit from last year.”
Fertilizer prices started to steadily rise last November before making a big jump in January and remaining strong through the spring. Since then, prices have continued to go up.
“We’ve seen these prices before, but you’ve got to go back to 2013,” said Ryan Furtas, provincial market analyst with Alberta Agriculture and Forestry. “Generally when you see high ag commodity prices, fertilizer usually comes around too.”
[VIDEO] Four factors driving up fertilizer prices
If you haven’t been watching fertilizer prices, be prepared for sticker shock. Listen below to Daily News editor Dave Bedard about why the cost of nutrients has shot up so much in the past year.
Because of these record-high crop prices, producers didn’t see the traditional drop in prices over the summer.
“To give you an idea, the current price is the spring price, and the spring price is usually $150 to $200 a tonne more than the fall price we’d normally be paying,” Garth Donald, Decisive Farming’s manager of agronomy and co-founder, said on Sept. 8.
“Last fall for urea, we had prices in the high $300s to mid-$400s, and by spring, it was at high $600s to low $700s. We’re starting now at high $600s to low $700s, and I just got notification from a grower yesterday that there was a $100-a-tonne bump coming.
“That’s putting us into the $800s already.”
But it’s not just high crop prices tempting fertilizer makers to hike prices — they’re also facing higher costs, especially for energy.
“2020 was a bit of a blip in the sense that some of those energy commodities were priced so very low that there was a low cost of production,” said Furtas.
“Now we’re seeing the new reality of the price of fertilizer made with higher input costs.”
Other factors are at play as well.
Hurricanes in the Gulf of Mexico have slowed production of fertilizer in the southern U.S. as a result of damage to processing facilities in Florida. The storms have also created global shipping delays, driving shipping rates up and increasing competition for commercial barge traffic on the Mississippi River, which is already suffering from low water levels as a result of drought.
“There are a lot of things that have happened to create this perfect storm of price increases,” said Donald.
“We tend as a group to think local, but our fertilizer is not local — it’s global. If we don’t look at all the factors in play, we don’t have a complete picture.”
The bottom line is that producers shouldn’t bank on fertilizer prices coming down any time soon.
“Growers say, ‘Ah well, if the price is too high, we’ll just not buy, and the price will come down,’ but there’s no indication in the market that says the price will come down,” said Donald.
“It could drop, but there’s just no signs saying it will.”
“It’s pretty hard to predict where fertilizer prices are going to be going, but I think the reality is that we’re going to continue to see these elevated prices,” he said.
“If you break down what’s driving these costs and how things are evolving right now, global economies are continuing to reopen somewhat, and as economies open up, we’re seeing strong demand for energy and for goods around the world.
“When I look at those factors, I suspect that energy prices are going to remain where we are right now, and fertilizer companies have already incurred some of those costs.”
So producers may want to stage fertilizer purchases over the coming months.
“Buy some now, buy some in a little bit, buy some more in the spring,” said Furtas.
“If you’re at a good spot in the market and you’re able to pre-buy, that would be a good option in terms of locking in a margin. As long as crop prices remain high, that should help with some purchasing power for fertilizer.”
A soil test is another must-have this year, added Klemmer.
“It’s been a very challenging year in Western Canada, so I think it’s going to be important to do some soil testing and know what you have available so that you’re maximizing your input dollars and taking advantage of what you have in the soil.”
That’s particularly important before thinking about cutting back on fertilizer because of high prices.
“If you make a knee-jerk reaction of cutting your fertilizer, it’s like saying, ‘My car isn’t running so I need to buy a new car,’ but you’re just out of gas,” said Donald.
“It’s not about cutting back — it’s about understanding what you have left in the gas tank.”
So a soil test will “probably be the best thing they can do for their farm to get them started,” said Donald, and not just for one crop in the rotation.
“If they’re growing wheat, barley, and canola, take samples on wheat, barley, and canola,” he said.
“Some areas, the yield was horrid, but they also had 17 or 18 per cent protein. That protein ate up nutrients that they may think is still in the soil. So know what each crop has left in the tank for you to be able to make a decision.”
In most cases, simply cutting back on inputs to cut costs isn’t the right call.
“At the end of the day, as we look at these overall markets, if you skimp out on your inputs, it generally impacts your overall production,” said Klemmer.
“So I think staying the course and making sure you’re following the best agronomic advice you have is going to be important.”
But even more important will be taking a look at your finances and developing a game plan before buying.
“Being ahead of the game and giving yourself time to plan around what the markets are doing is really important as part of an overall business plan for farmers,” said Klemmer.
“Agriculture always throws these challenges and ups and downs at us. That’s why it’s important to have these good business plans in place so you can continue to roll with the punches and make the best decisions for the long-term success of your operation.”