Farm inputs may have hit plateauFarmers may finally be able to look forward to lower input prices, thanks to settling grain prices and lowered demands for nitrogen.
By: Matt Bewley, Grand Forks Herald
Farmers may finally be able to look forward to lower input prices, thanks to settling grain prices and lowered demands for nitrogen.
“The bottom line is that input costs basically have topped out in 2008,” said North Dakota State University economist Andy Swenson, who spoke Wednesday at the International Crop Expo at Alerus Center.
“That doesn’t mean that each individual input cost has flattened out or is going down, or even the total cost of production is doing down,” he said.
But overall, Swenson thinks the input costs for farmers to get their crops into and out of their fields have reached their peak.
A key indicator of agricultural input costs is nitrogen, one of the most expensive and commonly used fertilizers in the Northern Plains. For several years, it had hovered at about $100 per ton and then spiked upward in 1973 with the Russian grain deal. That brought a new plateau for urea prices, which stayed around $200 a ton from 1974 to 2005.
A few years ago, raw material prices were strong, thanks to China’s buying everything it could lay its hands on. They wanted all the copper, scrap iron and fertilizer they could get, and their massive demand was pushing the prices up.
“That’s basically what happened with nitrogen fertilizer,” he said. “Then, the thing that really jolted the market was back in April 2008; China had an export tax on its urea and they bumped it up from 35 percent to 135 percent.”
They were trying to protect their domestic supply, he said. The result for the rest of the world was that prices jumped up $200 per ton in one month.
“We had this big run-up in urea prices and all costs, really, in 2008,” Swenson said.
Grain prices had also jumped because of the ethanol industry’s demand for corn, leading to one of the most expensive plantings in U.S. history.
“We saw an unprecedented increase in costs in 2007,” he said.
It was this mirroring behavior between grain prices and input costs that leads Swenson to suspect that input costs have maxed out.
In September, as the world credit crisis took hold in agriculture, global demand for urea fell. In the U.S. alone, fall applications of fertilizer were down 40 percent.
“The demand really tanked,” said Swenson. “I think the urea prices have topped out because the grain prices have now dropped.”
This is good news for farmers, who have seen record grain prices being gobbled up by higher-cost inputs.