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War, politics and crop inputs

Ag Marketing IQ: Fertilizer prices are down, but a storm of uncertainty roils energy market expectations, grain production estimations and interest rate conversations.

Bryce Knorr, Contributing market analyst

October 14, 2024

5 Min Read
Fertilizer getting loaded into bulk hold of ship
Getty Images/Pro-syanov

Sports fans are in pig heaven come October, with baseball, football, hockey and basketball all in action. Farmers also follow a lot of fall box scores from agriculture’s very own big games.

Updates from USDA, as well as key reports on weather, input prices and the economy, provide plenty of data to wade through as harvest 2024 continues to gather steam. But good luck seeing a forest amid all these trees, because the numbers don’t always tell the same story.

Here’s the scorecard so far for crops, El Nino, interest rates, and fuel and fertilizer markets.

No October surprise

USDA made only small changes to production forecasts included in the Oct. 11 World Agricultural Supply and Demand Estimates, cutting soybean yields slightly from September forecasts while boosting corn a little the other way. But the only significant changes to supply and demand tables resulted from production totals included in the Sept. 30 Grain Stocks report. And those were expected by the trade.

By the time the agency releases its final monthly estimates in January, that story could change dramatically due to production impacts from hurricanes Helene and Milton – and any others that come down the pike. Tallying storm damage is always a drawn-out process. Crop insurance claims reported to the Risk Management Agency will be watch closely for clues.

Related:Sustainable Aviation Fuel: Can the U.S. compete with Brazil?

Crop Progress ratings ahead of the Oct. 14 holiday declined for both corn and soybeans, but forecasts of corn yields projected by these conditions have improved since USDA’s survey at the end of September and beginning of October.

Changes to demand estimates were also modest this time around. Corn export totals from USDA look a little large, but shipments in part depend on the size of crops harvested by competitors. South American production, especially from Brazil’s big second crop, won’t be known for many months, and the war in Ukraine clouds supplies from drought-hit Europe and Russia.

Soybean sales are even more of a jump ball. The 60% to 100% tariff on imports from China, as proposed by former President Donald Trump, could again trigger retaliation from the world’s largest importer. That’s one reason futures battled to hold $10 last week.

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La Nina fades

U.S. weather forecasters last week lowered risk of La Nina cooling off the equatorial Pacific, instead predicting a weak and short-lived event starting this fall and lasting through winter and the beginning of spring.

La Nina can hurt soybean yields in Argentina, where soil moisture levels remain below average. Neutral conditions during summer in the northern hemisphere are more benign, though both better and worse than normal U.S. yields were observed during past summers with neither La Nina or El Nino.

Related:Options open opportunity

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Fertilizer costs drop

Food prices and fertilizer costs show a strong correlation, moving higher and lower in something of a two-step dance together. So, with crop prices down sharply, lower nutrient bills are not a surprise.

Low crop prices give farmers less incentive to push applications, and also give them less money to spend filling up fertilizer bunkers for spring and fall. But demand from growers is only one factor. Supplies and competing products also impact costs.

Phosphate exports from China can be the swing factor in moving markets for DAP and MAP. Tariff disputes in Europe are shifting where farmers on the continent get supplies, with U.S. exports higher just as hurricanes create uncertainty in Florida’s mines. DAP prices moved higher in October off spring lows, and remain elevated compared to 2021 levels.

Ammonia settlements for October contracts at the Gulf also moved higher but still are just shy of a third of the peak reached during the post-pandemic inflation explosion of 2022. Potash in Midwest cash is at its lowest since mid-2021, as the trade anticipates farmers will follow their normal practice: cut back applications, mine their soil and conserve cash.

Related:Do crude oil, soybean and palm oil prices correlate?

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Messy markets for energy

As usual, petroleum prices follow bomb patterns in the Middle East, and fears of Israel’s retaliation against Iran caused a spike in crude oil and products, increasing diesel costs by around 20% at a time when demand from agriculture can also tighten the market.

Propane followed suit, thanks to last week’s spike by U.S. West Texas Intermediate crude to above $78 a barrel. Buying both heating fuel and winter coats gets more expensive as temperatures drop, and production from OPEC and its allies dropped last month, though fields in Libya are expected to return as political instability there improves.

Food and energy costs helped drive the spike in inflation, and the news on the direction of prices is just as messy. While the September Consumer Price Index out Oct. 10 came in a little hotter than anticipated, Producer Prices the following day were benign, continuing a conflicting data flow that included a big spike in jobless claims last week, through layoffs may have resulted from hurricane closures.

Whether things are getting better or worse, of course, could have a big impact on the election. How this mix of reports is interpreted could influence the timing of interest rate cuts by the Federal Reserve. The trade overwhelmingly expects the central bank to cut its benchmark Federal Funds rate by one-quarter of 1% at its next meeting right before the election, with two more reductions by January. But huge budget deficits – a likely scenario regardless of who wins the election – could tamper any effort to cheapen the cost of money.

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Fertilizer

About the Author

Bryce Knorr

Contributing market analyst, Farm Futures

Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and Commodity Trading Advisor. A journalist with more than 45 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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