Outlook for Inputs

OUTLOOK FOR INPUTS

Written by: Katie Tangen Marketing Education Specialist

Grain markets have been a wild ride for the past year or more, but one thing that hasn’t been discussed much is how volatile fertilizer and fuel costs have been. There’s no easy answer to any of that, but some background on where these markets have been and where they are going can help us plan for the future.

There are three main items that contribute to the rise in costs, and one item that may be able to temper that rise in costs, and one item that I think may be able to temper that rise, at least in the short term. Attention to these market movers doesn’t guarantee the “right” decision, but it can help producers make the most educated decision for their operation

Inflation

Price inflation coming out of the COVID-19 pandemic has been hot and truth be told, it’s a double-edged sword for farmers. Inflation has helped drive commodity and asset prices higher but not just on one side of the ledger. There isn’t much to be done here, but what is important is that producers remember they are working on a margin. High grain prices invariably bring about high input prices; that’s part of the marketplace. Making sure you manage sales and purchases in tandem is more important than ever. At this point in the season, fertilizer is being purchased. You may want to think about if you have sold enough grain to offset that cost. If not, it is something to consider. You can start looking ahead to next year. Seasonally, the coming months offer some of the better fertilizer pricing opportunities for the 2023 season and the same principles apply. If you buy fertilizer, sell grain. Fuel gets to be a little trickier to determine, but it is the same idea. Don’t forget interest expenses. While that’s not as easy to hedge, keeping your debt levels manageable will be important.

Shipping and Logistics

Time is your friend. It is a principle that serves producers well in considering grain sales, but it is also something that can be invaluable in making purchasing decisions. Give yourself and your supplier time. Some things are moving better, some are not; but if you are open with your supplier and tell them what you need well ahead of time, they can plan accordingly. Everyone is short on things from the plastic needed to make a jug of chemical to certain salts needed in the production. Changes in certain shipping practices are underway that should help out as well (less shipping of empty containers back and forth, different inventory management practices, etc.). What producers can do is help ease the rush for “just in time.” When it comes down to it, possession is everything. Just remember you have to be able to keep whatever it is you possess in condition - especially chemical.

Russia/Ukraine

Tensions in the Black Sea are not new to history but what is newer is how interwoven the world has become. Additionally, Ukraine is a major producer and exporter of wheat, corn, sunflowers, and barley. Russia is a major exporter of crude oil products, steel, coal, and fertilizers. The thing about fertilizers is that when it gets right down to it, these things are produced from the ground. You cannot do much to move natural resources. High grain prices going into the 2022 crop season, as well as breakdowns in the logistical chains, further tightened availability. The more accustomed the world gets to having Black Sea shipping disrupted, to having sanctions on Russia, the “easier” things will get. The problem will still exist in some forms, but shipping routes and those merchandising the products will become better equipped at handling it. Again, using seasonality to your advantage is something to consider.

These three issues place the most stress on input prices heading into fall. There is not a magic bullet, but sound management practices and knowing where your margins are will be invaluable. So, what is the mitigator?

At this point, the mitigator looks like the weather. A cool, wet spring delayed planting and lessened that “everybody needs it now” tone that we so often see. Given the speed of the supply chain and the price levels that especially fertilizer were rising to in early March, there was concern about how producers would get spring fieldwork done in time. Planting delays forced that issue, spreading out fieldwork across the U.S. Unfortunately for some, it also meant that they have acres that may not get planted. It was not ideal for grain growers, but it does provide a much-needed reset that should help everyone catch up and increase local and regional supplies for the 2023 season.