Poor harvest conditions this fall could drive up fertilizer prices next spring.
“For many producers right now in Alberta, fertilizer isn’t top of mind. They’re focused on getting the harvest off,” said Craig Klemmer, principal agriculture economist at Farm Credit Canada.
“So when we look at the pricing side of things, demand wasn’t as strong coming into the fall, and we’re starting to see that there’s concern about the potential availability of fertilizer and higher input costs coming into the spring.”
The winter months generally offer the best buying opportunities for urea, ammonia, and urea ammonium nitrate, with a sag in prices from November until February. But fertilizer prices are already ticking up, and that isn’t likely to change as the wintry weather wears on.
“Overall it looks like prices are getting less affordable than they have been over the last couple of years,” said Ryan Furtas, input market analyst for Alberta Agriculture and Forestry.
“If not much gets put on in the fall, either here or in the U.S., that will put a pinch on the supply come spring. Not only might we see an increase in price, we might also see less availability of the actual product.”
Ideally, producers would be able to get some fertilizer in the field this fall to spread out demand — but this harvest hasn’t exactly been ideal. Even so, producers should watch out for opportunities over the next month or two to put down some nitrogen if they get the chance, said Furtas.
“That might not be too likely for Western Canada — we don’t know — but if you have an open fall and are able to put down some fall fertilizer, that will definitely help smooth out some of the spikes come springtime.”
Cropping plans will also play a role on pricing and availability next spring, said KIemmer.
“There is always shifting demands based on what producers are looking to plant,” he said. “If we start to see more heavy-input crops going into the ground, that’s going to require greater supply.”
An expected drop in pulse crop acres — which fix their own nitrogen and consequently require less fertilizer — will see producers looking for alternatives in their crop rotation. That will likely mean more canola acres here while farmers in the States are expected to plant more corn, another input-heavy crop. So producers will need to pay attention to what’s happening in the Corn Belt, which is largely what’s driving fertilizer demand in North America right now.
“If we see a sustained rally in the corn price, that would lead to more usage, which would increase the price,” said Furtas. “They’re already seeing a slight increase down there, so that’s probably going to translate up here.”
From a bigger-picture perspective, the economy is also improving in both Canada and the United States, and that means higher labour and material costs in general. Those costs will trickle down through the supply chain, said Klemmer.
“There’s a combination of factors on the macro side of things in Canada and the U.S. that could be contributing to some of these things that we’re going to see at the farm level,” he said.
“How it pans out come spring is yet to be determined, but it’s something that’s going to be on our radar over the winter.”
But for Albert Wagner, fertilizer prices aren’t a worry.
“We’re not too concerned,” said Wagner, who has a 4,500-acre grain farm near Stony Plain.
“We purchased pretty well everything we need for 2019 back in July. We’ve already got it in stock on the farm.”
Wagner has been buying his fertilizer in the off-season for the past 15 years and storing it in grain bags on his farm. So far, it’s paid off almost every year.
“There was only one year where we really didn’t save anything, but normally, we can buy it for quite a bit less in the off-season,” he said.
The grain bags give Wagner “basically unlimited storage” at a fraction of the cost of a fertilizer bin (about $500 per 250 foot bag, which can hold about 300 tonnes.)
“It’s worked well for us as cheap storage,” he said.
When deciding whether storing the fertilizer will pencil out, Wagner adds the carrying cost of storing it on farm (usually $35 to $40 a tonne) to the estimated fertilizer cost based on historical pricing trends, and then decides if it’s likely to give him a return.
“If the price rises above the total cost by spring, we’re in the money,” he said.
But it’s not without its risks, he warned. Moisture can be a problem, as can wildlife damage. So far, though, it’s been worth the risk.
“The first year we did it, we saved enough to pay for the bagger. That’s a fair chunk of money.”
But every farm is different, said Klemmer, and there’s no one right answer to managing fertilizer price fluctuations over the next six months.
“It depends on how your farm operates,” he said. “Some producers have the opportunity to store it, so they may look to purchase some of their fertilizer in the fall in expectation of a little tighter supply. For other operations, that’s maybe not the best idea.
“This is just one component of the overall farm system. It comes down to managing cash flow, expenses, and revenue streams, and then making sure you’re doing what you feel is best for your operation.
“We have to take a whole-farm approach.”