The good news is that fertilizer industry analysts don’t expect nutrient price increases in 2015. With the possible exception of UAN producers might even see lower prices. Fuel prices also remain a bright spot and are likely to remain below recent year averages. Seed and chemical dealers are more likely to be concerned with holding prices than pushing increases.
The bad news is that lower commodity prices leave less revenue to pay those input bills. The commodity/input price ratio is likely to be the key question for 2015. Corn, soybean, wheat and cotton prices are projected to hover around the cost of production. Reduced farm income eventually puts pressure on input prices but in the short run commodity and input prices are largely de-coupled. Producers will need to strike a balance between crop needs and cost.
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Most producers in the region don’t have above normal nitrogen carryover, which limits options to manage nitrogen costs. Producers will want to pay close attention to soil tests and should consider the advantages of variable rate or zone application. Lower fuel prices also make split applications more attractive. In contrast to nitrogen, phosphorus and potassium are stable nutrients, which means application levels can be cut back with less chance of a yield penalty. While 2015 will be a year to be prudent in application strategies, don’t get caught in the trap of reducing levels too much and then having to make up lost ground next season at higher prices. Phosphorus and potassium are no higher than a year ago.
When margins are tight, producers tend to take a wait and see approach to input pricing. However, the oil boom which gave us our lower fuel prices has also increased logistical problems in truck, rail and barge transportation. Supply chain issues can lead to price spikes during periods when the fundamentals point to lower prices. Pre-pricing and pre-positioning fertilizer purchases can make sense, especially if prices are at a level to pencil in a profit. In the longer term, expansion projects at existing U.S. nitrogen plants and new projects should improve both price and supply issues. The first effects could be felt by late 2016.
Aside from fertilizer, seed costs are the major non-land input cost for many producers. Tighter margins have producers scrutinizing whether they can reduce plant populations or cut back on less essential genetics. As in fertilizer, a zone approach where lower populations or lower technology in less productive areas of the field could make sense. The goal is to target costs to get your biggest return on the dollar.
As commodity prices fall, attention focuses on pulling back on expenses. The key is keeping one eye on the checkbook and the other on yield potential.