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Farmers need to prepare now for higher fertilizer costs in 2019

By DOUG SCHMITZ

Iowa Correspondent

URBANA, Ill. — While fertilizer costs have decreased in recent years, farmers will most likely see an increase in those costs going in to the new year.

“Since 2013, fertilizer costs decreased, while seed costs remained stable,” said Gary Schnitkey, University of Illinois-Champaign-Urbana professor of agricultural economics, in his 2019 input projections.

“In recent years, pesticide costs increased,” he added. ‘Looking forward into 2019, it seems reasonable to expect pesticide costs to be at higher levels, while seed costs may remain stable. At this point, fertilizer costs are difficult to predict.”

However, he said fertilizer prices increased throughout late 2017 and the first part of 2018.

“It is likely that average fertilizer costs for corn will be higher in 2018, but the timing of purchase will have a large impact on costs,” he said. “Farmers purchasing fertilizer earlier will have lower costs than those purchasing later.

Chris Hurt, Purdue University professor of agricultural economics, said fall fertilizer prices are already higher than last year.

“I have corn at $20 per acre higher and soybeans at $8 higher,” he said. “The point is that prices are already higher.”

Schnitkey said he expects fertilizer costs for corn to increase $15 per acre in 2019 and for soybeans, $5 higher.

Hurt agreed with Schnitkey’s projections: “Early-pay discounts are very influential and encourage farmers to buy sooner rather than later. These are important factors for many.”

Clarke McGrath, Iowa State University’s Iowa Soybean Center on-farm research and extension coordinator, said right now, it looks like the five- or six-year run of mostly declining and favorable fertilizer prices is done for a few years at least, with prices rising since last summer.

“With the pricing I’ve been given, compared to a year ago, we are seeing phosphates up anywhere from $50-80 a ton, potash is up 20-50, and NH3 is up around $80-120,” he said. “These inputs will likely remain higher than last year whether we prepay or wait, so it becomes a question of what happens to pricing between now and spring, which is hard to answer.

“Typically, phosphates and potash trend up a couple of percent toward spring,” he adding it’s harder to tell what will happen with nitrogen.

“Odds are higher that prices will rise toward spring, but things can get complicated with supply/demand/logistics issues among NH3 vs dry vs liquid N in springs where there are big shifts among the nitrogen products,” he said.

McGrath added, “Fuel can be fickle too, although right now, things seem pretty quiet. A fair amount of farm fuel is already locked in, and since it is hard to see much downside risk versus upside risk, my guess is that more will be locked in over the next month or so during prepay season.”

He said other factors will play into chemical input decisions for 2019.

“Maybe not on every product, but on some,” he said. “The tariff situation with China will impact chemical prices, and another issue that isn’t making as much news will also play a role.

“The Chinese government began a crackdown on agrichemical producers last year, in an effort to clean up their environment,” he added. “This meant taxes and penalties for many of the manufacturing facilities in China, and they are a significant global supplier of agrichemicals.”

Out of all of inputs, he said seed pricing is probably “the most complicated and convoluted.”

“Are you bundling with certain other seed or chemical products?” he added. “It is pretty hard to figure out what the price of a bag of seed is without pretty good spreadsheets. But in general, from what I’ve seen and heard, seed is going to be flat to maybe down a little overall.”

When developing 2019 crop budgets, Schnitkey said having seed costs per acre remain stable and pesticide costs the same or higher than 2017 levels seems reasonable.

“Fertilizer costs will come into clearer perspective toward fall,” he said. “At this point, it seems reasonable to expect the sum of fertilizer, seed, and chemical costs to remain stable or increase in 2019.”

Hurt said inflation is expected to be a little higher in 2019, and this favors buying now.

“On the other hand, interest rates are higher now, so those farmers who need to borrow money to finance input purchases will likely find waiting until 2019 saves more interest costs than the inflationary pressure on input costs.”

12/18/2018