By Adam Rabinowitz and Wendiam Sawadgo et.al
Fertilizer is a significant input in the production of row crops for farmers that can quickly disrupt previously calculated break-even levels and marketing decisions. Since the production of fertilizer – especially nitrogen fertilizer – depends on natural gas, it is also very closely tied to oil market activities. There has been much attention in the news about the conflict in the Middle East, the blockage of the Strait of Hormuz, and oil prices. The lack of oil flowing through the Strait is affecting oil markets throughout the world and raising concerns about how farmers will be affected.
Farmer Pre-booking of Fertilizer
To better understand the challenges faced by farmers, the American Farm Bureau Federation (AFBF) conducted a survey of farmers throughout the U.S. from April 3-11. The AFBF survey asked about fertilizer and fuel purchasing and potential impacts from the recent price increases. Respondents in the Southern region reported the lowest percentage of all respondents who pre-booked fertilizer, at 19%, compared to the high of 67% in the Midwest. This means that proportionately more farmers in the South are now facing higher-than-expected input costs as planting approaches. The increase in break-even prices means farmers need to reevaluate what constitutes a “good” marketing opportunity. A price target that looked feasible during the winter may not cover updated input costs. Prior sales also need to be evaluated in this context. Bushels priced earlier in the winter, based on lower cost expectations, may now be insufficient to cover higher input costs.
Farm Input Price Trends
While the recent spike in fertilizer and diesel prices has created additional challenges, it is also important to understand the broader context of these prices over time. The U.S. Department of Agriculture’s Agricultural Marketing Service collects prices for several fertilizer and other input products in Alabama. The minimum and maximum price of each product has been reported weekly since October 2017. The area between the minimum and maximum price depicts the range in prices that farmers pay in Alabama. Figures 1 and 2 show the price ranges for urea and farm diesel.
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