Seven years in the past, I used to be solely thinking about speaking about the crop aspect of ag manufacturing. I couldn’t assist it at the time – I’m an Illinois farm lady and as much as that time, cows and corn had been my life.
However round that point, I began working in meals manufacturing. I rapidly realized how crucial different elements of the provide chain had been to farm producers – though I nonetheless most well-liked to speak about cows and corn if given the probability.
Lots of uncertainty stays about what the world will appear like by Could. Tightening corn and soybean provides will present a ground to costs by planting season, however different areas of the ag provide chain deserve a watchful eye from the planter this yr. So, I’m deviating from corn and beans barely this week to research the value portion of the farmer’s revenue equation. However bear with me – I promise it’s price it.
Fairly frankly, fertilizer and chemical prices have finished nothing however go up since harvest wrapped up final fall. In its February 2021 forecast, USDA’s Financial Analysis Service (ERS) projected a 2.5% annual improve in 2021 manufacturing bills for farmers. Gasoline, fertilizer, pesticides, and electrical energy prices are slated to extend 4.3% from 2020 costs.
Pure fuel prices have eased off winter 2020-2021 highs. Pure fuel is a key part of fertilizer manufacturing, so monitoring its worth may very well be a number one indicator of potential worth shifts in the fertilizer and chemical market.
In 4 of the final 5 years, pure fuel costs have elevated throughout April and Could. Costs in the pure fuel market have been more risky over the previous yr than the earlier 4, with loads of the added noise attributable to pandemic restoration. Finally look, pure fuel futures had been buying and selling close to late Fall 2020 costs.
A stimulus bonus?
However an analysis from AI firm Toggle suggests this season could also be an anomaly for pure fuel worth patterns. Toggle checked out the 5 largest fiscal coverage and stimulus packages handed over the previous twenty years and analyzed the impacts to markets following every fiscal measure being signed into legislation
The report finds that pure fuel costs fell a mean 2.21% in the two weeks following the final 5 stimulus payments being signed. This is smart: as customers obtain their stimulus checks, they’re more prone to spend that cash – and time – away from residence
And this spherical of stimulus may exacerbate that development. It should coincide with rising vaccination charges and doubtlessly booming financial exercise as more customers enterprise out in public whereas the pandemic begins to wind down.
Which means much less time might be spent at residence so warmth and electrical demand, which is basically powered by pure fuel, may decline.
If the stars align, fertilizer and chemical prices may ease barely this spring as pure fuel prices abate. As of mid-March 2021, fertilizer and chemical prices in Illinois have surged almost a 3rd greater than the similar time a yr in the past amid a recovering international economic system, rising power costs, worldwide acreage expansions this spring, and a phosphate commerce dispute with Russia and Morocco.
In fact, farmers will even want to look at for rising prices of different power merchandise as nicely throughout planting. The Toggle report averages a 7.08%-increase in power costs in the three months following the passage of latest stimulus measures.
Farm money receipts are anticipated to rise on greater commodity costs this yr, so farmers are going to must be more diligent than ever in executing a sound advertising plan to make sure their revenues outpace rising prices. Excessive commodity costs improve revenue potential, however value administration methods might want to see tightened self-discipline to make sure 2021 income are maintained.
USDA hinted at tight corn and soybean provides in 2021/22 at its February 2021 Annual Outlook Discussion board, which might assist one other yr of excessive commodity costs. So, if farmers find yourself seeing easing enter prices whereas working the planter this spring and the revenue margins pencil out, it might be a wise transfer to have a look at reserving some inputs for fall fieldwork.