That was the message as Farm Credit Canada provided its latest update on input prices for the 2024 crop year.

Why it matters: The wild price swings for crop inputs, especially fertilizer, appear to be over, but farmers should keep abreast of issues that might affect prices as they plan for spring seeding.

Fertilizer prices reached new highs in 2022 when the war in Ukraine threw a wrench in the machinery of global supply when it was already tight. For months, chaos reigned in the markets as a result of the conflict and related international sanctions against Russia and its ally, Belarus.

Natural gas prices skyrocketed as Russian supply choked off, leaving previous European customers scrambling to find new suppliers. Russia was previously Europe’s main supplier of natural gas, while both Russia and Belarus are important fertilizer exporters. With that supply off the table, global fertilizer demand surged.

Today, FCC experts said, the world seems to have acclimatized to a new normal.

“It’s safe to say the world got used to trading these different commodities from elsewhere in the region,” said Leigh Anderson, senior economist with FCC and author of the organization’s 2024 Crop Input Outlook.

As demand softened because of high prices, global fertilizer production and supply increased. Russia was heavily embargoed on the international stage but found markets for its fertilizer. China also re-entered the urea export market, pushing global production volumes.

“While there’s not necessarily a price premium anymore, we’ve gotten comfortable with the other suppliers filling that void,” Anderson said.

However, the economist warns that European production isn’t certain and China is unpredictable.

“China will still be a wild card if, for whatever reason, they change policy,” said Anderson. “That’s on most commodities; they can always change their decision on a dime. We’ve seen that in other markets and commodities over the years.”

But for now, Anderson said there seems to be a sense of equilibrium.

Dealing with ripples

Effects of the previous market rollercoaster are working their way through the system.

Producers may have lower prices, but efforts to predict supply and demand during volatile times were a challenge for retailers.

After the spikes in 2022, fertilizer prices collapsed. Retailers who had committed to buying supply at those higher prices were left holding the bag.

“Most of us had a pretty huge debacle in terms of selling at a negative margin,” said Ray Redfern, president and CEO of Redfern Farm Services, a crop input retailer based in southwestern Manitoba.

“The reality is that we’re going to be even more nervous about making a long-term commitment for fear that we have a situation where we lose hundreds of dollars per tonne on everything that we sell.”

If retailers shy away from pre-orders, producers could have limited options and may have to settle for whatever retailers have on hand. Redfern said supply remains tight for many fertilizer products and prices are expected to remain under pressure early into the New Year.

Drought conditions in the Canadian Prairies, which have reached crisis levels in some parts of the West, could also soften demand, since lack of moisture could mean more residual nitrogen in the soil.

But Redfern says some products will almost certainly be in short supply. Anhydrous ammonia is a big one.

“Customers are going to have to either delay that product use to a spring [delivery] or we’re going to have to give them substitute products [urea or UAN],” he said. “So, we’ll be trying to work this out with growers who didn’t plan to have to use alternatives.”

Chemical inputs

The global recovery of agro-chemical production, along with softer demand, has led to increased global supplies, according to FCC.

“Overall, global prices have moderated for both glyphosate and glufosinate,” the lender said in its report.

Redfern sees more price stability in all the crop protection products his company offers.

“For crop protection products, whether it’s fungicides or herbicides, that market is more stable,” he said.

“There is less uncertainty in terms of product supply now that the supply chains are working as they should.”

Seed

FCC noted the 2023 drought sparked concern on stability of commercial seed markets.

The future trends of those markets will largely depend on the ability to grow seed supplies in South America during the Northern Hemisphere’s off-season, it noted.

Redfern says he doesn’t anticipate a big problem with seed.

“We haven’t heard yet of worldwide shortfalls in the production of some of the seed that’s not produced locally.”

He added that, despite the drought, local seed growers will produce enough to meet his customers’ needs.

“It’s possible that there’ll be some restrictions on a variety or two, but seed will certainly be available.”

An El Niño weather phenomenon could mean another hot, dry summer for the Canadian Prairies, which could increase demand for earlier maturing varieties.

Fuel

On fuel, FCC suggests that diesel prices will trend lower in 2024 as global economic growth slows.

“Our preliminary estimate indicates that farm diesel prices will be 2.8 [per cent] lower in 2024,” the report said. It cautioned that continued global uncertainty and low U.S. supply could keep prices high.

Demand-side pressures

Anderson’s report indicated several factors can affect the market and producers should keep their ears to the ground.

Canadian crop receipts were up 19.8 per cent for the first half of 2023, driven by strong sales of canola and wheat. But in drought-stricken areas, crop receipts are expected to decline significantly this year and into the first half of 2024.

“Strong farm cash flow remains key to crop input sales,” said the report. “Pre-purchase trends for the remainder of 2023 may provide an early indication of what the sector can expect for 2024.”

There are also general economic factors to consider.

The Bank of Canada held its policy rate this month, which could indicate a plateau in interest rate hikes. FCC predicts interest rates will lower by the second half of 2024 as the global and Canadian economies weaken.

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Belchim Crop Protection announced Monday it had increased its stake in the Guelph-based company — which it renamed Belchim Crop Protection Canada in 2017 — to 100 per cent for an undisclosed sum.

The Belgian parent firm’s investment “allows further integration and provides synergistic advantages that can be established between the parent company and its Canadian enterprise,” Belchim CEO Johan DeSaegher said in a release.

Belchim has had an interest in Engage Agro since 2016, when it bought an undisclosed minority stake, and raised it to 60 per cent at the end of that year.

Operating since 1995, the Canadian operation was best known for its work within the minor use registration system, developing, registering, selling and servicing products for markets such as horticulture, ornamentals, turf crops and row crops, “vegetation management” and other specialties.

The parent firm markets crop protection products in European Union member states, specializing in “important” EU crops such as potatoes, vines, vegetables and corn.

Belchim had said in 2016 it hoped to leverage the Engage Agro platform to bring its ag chem platform overseas.

In mid-2017, it also bought full control of Arizona-based Engage Agro USA, a deal it said offered a “ready-made platform” to market the parent firm’s portfolio to growers in the United States. — Glacier FarmMedia Network

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Philadelphia-based FMC will focus on increasing sales of crop chemicals developed internally, and avoid big acquisitions for a few years, after it closes a deal this year to swap its health and nutrition business for part of E.I. du Pont de Nemours and Co.’s crop protection business, Brondeau said in an interview.

The deal, announced in late March, would vault FMC to the world’s No. 5 pesticide maker by sales from eighth-largest in a market where abundant grain production has softened crop prices.

The swap will bring to FMC 15 crop chemicals that DuPont has in development, adding to nine in FMC’s pipeline.

“My objective is we need to be… from an organic growth standpoint, the fastest-growing company in the industry,” Brondeau said. “We believe we can grow today, even if we are at the bottom of the (agriculture) cycle.”

FMC will target mid- to high single-digit annual revenue growth starting in 2018, Brondeau said.

Smaller producers, such as Nufarm and Sumitomo Corp.’s crop chemical business, might need to combine, Brondeau said.

“The big five are going to be so strong that some of these smaller companies are going to have to join forces,” he said.

Demand for crop chemicals has dropped in North America and Europe this year, but is climbing in Asia and Latin America, Brondeau said.

FMC shares hit a nearly three-year high in April following the DuPont deal.

While FMC aims for growth, a proposed U.S. border tax would be “really bad” for the industry, since production of certain chemical ingredients cannot easily move from other countries.

“Somebody is going to have to pay for it,” he said. “It would be U.S. farmers.”

FMC also produces lithium, a commodity in demand for use in electric vehicles.

The company will decide next year how to separate the lithium business, likely by initial public offering or spinoff. Selling it to a single buyer “is a very long shot,” as it would incur high taxes, Brondeau said.

FMC plans to decide by 2018 whether to roughly double lithium carbonate equivalent production in Argentina. Brondeau said there is “very high probability that it will be a go.”

— Rod Nickel is a Reuters correspondent covering the agriculture and mining sectors for Reuters from Winnipeg.

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Convent ional wisdom holds U.S. farmers will boost corn production next year because of historically high prices, robust end-user demand, and low global inventories.

But corn prices, off their highs by more than $1 a bushel, are now only 12 to 13 per cent above year-ago levels, and input costs are on average 25 per cent higher. If corn prices weaken further while input costs stay strong, they may be more inclined to scale back.

The prospect of a sharp climb in global corn production in 2011 and 2012 has helped steer the price of critical crop production inputs higher as well. The value of widely used fertilizers, crop chemicals and farm diesel are all up strongly on the year and in most regards are trading at their highest levels since their all-time highs in 2008.

U.S. Midwest average prices for such critical inputs as anhydrous ammonia, urea, potash and liquid nitrogen are all up by roughly 25 to 30 per cent since the fall of 2010.

However, corn prices slid sharply during September and have struggled to recover, complicating things for farmers who typically lock down new crop acreage allocations soon after harvest to complete some field preparations ahead of winter.

But weakening crop values and rising input costs may discourage some farmers from committing to large jumps in corn production, especially after a season where many growers saw corn yields underperform relative to soybean yields.

East versus west divide

One of the year s main narratives was the disparity in growing conditions on the west and east sides of the corn belt.

In the east, widespread field floods and cold temperatures seriously delayed spring planting and the late-seeded crops suffered more during a midsummer heat wave. Some eastern farmers are still harvesting, weeks after their western counterparts were finished.

That s delayed fall field work and so fewer eastern growers are committed to corn production in 2012 compared to western growers. Although less corn is produced in eastern states, even a modest reduction could hinder a large jump in U.S. corn output in 2012.

While many traders and analysts still pencil in large increases in corn output in 2012 based off price assumptions alone, such a production rise is not set in stone. Actual output totals may remain a moving target until deep into next year s planting season.

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The farm sector’s response to a surge in fuel costs has inverted for two important reasons: the rise of biofuels now means more corn and soybeans are likely to be drawn into the fuel pool; and the disconnect between natural gas and crude prices means fertilizer costs are not being dragged higher.

While neither trend is new, it was put in sharp relief last week as U.S. oil prices surged to $100 for the first time since 2008 amid Middle East unrest.

On balance, the surge is far more likely to lend support for a near-record corn-sowing season than it is to crimp farm income through higher costs for crop chemicals and transportation charges, analysts say.

“All indications are that the only thing that will keep a farmer from planting this year is if he drops dead walking out the door… and then somebody else will grab his tractor and plant for him,” said Missouri corn farmer Richard Oswald.

“There is every incentive

in the world to plant. High oil prices are just one more incentive.”

In addition, the surge has come long after most farmers have tilled their fields and locked in fertilizer purchases, leaving them better prepared

than in 2007-08, says National Corn Growers Association CEO Rick Tolman.

“When we saw this (run-up) a couple years ago, it really raised input prices and squeezed the margin,” said Tolman.

This year, input costs may pinch, but they won’t puncture the upbeat mood. Profits this year look to be strong. The U.S. Department of Agriculture has forecast farm income to be $94.7 billion in 2011, up 19.8 per cent from the 2010 forecast and the second-highest inflation-adjusted value in the past 35 years.

LIMITED IMPACT

To be sure, higher oil prices raise transportation costs for farmers just like everyone else.

However, fuel to run farm machinery, trucks and other equipment accounts for only a tiny portion of overall inputs – about three per cent of the total cost of growing corn on an acre of land in central Illinois this year, said Gary Schnitkey, professor of farm management at University of Illinois.

That’s more than offset by the bullish impact on grain prices.

“I think crude oil probably causes (crop) commodity prices to go up more than costs,” Schnitkey said.

Another important factor is natural gas, used to make urea, a source for nitrogen fertilizer used on corn. Fertilizer generally accounts for more than 40 per cent of the total operating costs for corn, versus 16 per cent for soybeans, according to USDA data.

Until the past few years, a rise in oil prices would almost certainly have dragged natural gas higher; however the discovery of decades’ worth of cheap domestic shale gas has put a semi-permanent damper on the market, keeping prices at unseasonally low levels even as oil surges.

Partly as a result of the benign natural gas cost, fertilizer prices look to hold steady through the U.S. spring planting season and then soften, said David Asbridge, president of NPK Fertilizer Advisory Services in St. Louis, Missouri.

“At the world level, we’ve got plenty of nitrogen fertilizer,” he said. “We’ve got a lot of imports coming into the U.S. and there’s really no reason for prices to stay as high as they are.”

———

“Attheworldlevel,we’vegotplentyofnitrogen fertilizer,”hesaid.“We’vegotalotofimports comingintotheU.S.andthere’sreallyno reasonforpricestostayashighastheyare.”

– DAVID ASBRIDGE, NPK FERTILIZER ADVISORY SERVICES

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The European Union may change to a hazard rather than risk-based approach, which effectively means crop chemicals could be banned if they are dangerous at any dosage. At present they can be allowed if they are safe at the level at which they are used.

“The biggest worry is the loss of fungicides. We cannot throw away some of the weapons we have in our armory,” Britain’s chief scientist John Beddington said at a conference organized by the Agricultural Industries Confederation.

Beddington said a move to effectively ignore dosage was “an abrogation of science” although he added Britain’s opposition was not shared by other EU members.

“It is not currently shared in Europe and I don’t really understand why,” he said.

Peter Kendall, president of the National Farmers Union, said his organization was lobbying strongly against the proposals but Helen Browning, food and farming director at Britain’s largest organic certification body, the Soil Association, said concerns had been overstated.

She said the proposals included safeguards to allow the least hazardous chemical to be used if a product was needed.

Beddington said it would be a challenge to meet an expected doubling in global food demand by 2050 with less water, less energy, less fertilizers, less pesticides and without increasing greenhouse gas emissions.

The growth in demand is caused both by rising world populations and changing diets in emerging countries.

He said science, in particular plant breeding, could play a key role in increasing yields.

“There is not a lot of extra land out there and productivity is going to be the key,” he said, adding there could be a role for genetically modified crops.

“We cannot dismiss the use of genetically modified crops out of hand,” he said.

GMO crops are widely grown in many parts of the world and now represent the majority of global soybean production. In Europe, however, there has been significant consumer opposition and crop approvals have been stalled.

Browning said if GMO crops were approved widely in the EU there would be a consumer backlash.

Beddington also said it was vital that crop losses to pest and disease should be reduced significantly if global demand for food was to be met.

He estimated global crop losses of about 40 per cent. “This is a thing we’ve got to be able to address,” he said.

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