I don’t get it. According to some of the leading crop prognosticators, 5 to 7 million US corn acres will disappear from their lofty 2007 planted acreage numbers. In Ontario it will be similar and even more so on a relative scale. Translation, there will be 5-7 million acres less demand for corn fertilizer. However, that’s what I don’t get. The hype about increases in fertilizer prices is going cosmic.
I had this debate with my radio director the other day. Everything in my economist bones tells me this is a scam. To make matters worse Canadian farmers have a dollar which is worth at least 15% more than a year ago. So combine that with a fertilizer market, which will obviously be smaller, this year and you have the makings of the great fertilizer robbery of 2008.
A couple of months ago I asked you to demand lower fertilizer prices in 2008. The Canadian dollar’s heated fall rise was enough to do that. In this present environment where “input hype” has gone mad there is clearly something very, very wrong in the marketplace. The price of the last tonne of fertilizer left in the warehouse come this June 1st better be a lot more than its been priced at today.
However, of course in a “free market” nobody knows that. Nonetheless don’t be surprised if that last tonne cannot be peddled anywhere. With soybeans testing the “teens”, you can bet there will be fertilizer left over to burn. At one time last year the corn hype was so crazy there were some analysts musing about if we’d have enough fertilizer to get that corn planted. 13.1 billion bushels later, I don’t think it was a problem.
Keep in mind what you are hearing out of the US is not all fiction. There is always lots of anhydrous applied in the fall there and they’d surely have a measure of what’s being used and what isn’t being used. There have also been some well-publicized shipments of Russian nitrogen fertilizer coming through at the port of Churchill Manitoba. With commodity prices where they are many people will be putting on more than a teaspoon per acre.
That’s the joke in one of the townships where I farm. The land is heavy clay naturally laden with potash. It needs a little phosphorous, but the heavy soil always holds some surprises. Most farmers hold the fertilizer back because the land has so may other surprises, which limit yield.
Still with $4.50 corn and $11.00 soybeans there will be those who nail down the small fertilizer gears and make that chain overheat. That’s one of the great truths of crop farming. Sometimes you plant corn when it’s worth $2 and sell it for $4. Other times it’s the opposite. However, in 2008 there is the real possibility of planting $4.50 corn and getting back more.
With my past experience in this industry that’s what’s hard to get around on. At the present time there are several analysts who say we’re going to see much higher prices. Demand driven markets are so much different than the more traditional supply deprived markets. With US ethanol capacity set to peak at 15 billion gallons by 2015, in the next few years everybody will be working toward on the demand side of the ledger.
That doesn’t mean a dollar could be taken out of this market really fast, especially soybeans. It begs the question is the old axiom about prices still true in 2008. “The best cure for high prices is high prices.” In Mount Alberta Ontario last Thursday I heard one analyst say the price of corn will go up and up until we bankrupt the livestock guys. With prices where they are and ethanol usage increasing it’s hard to disagree with that.
There surely is a myriad of opinion. In Mount Albert Ontario one producer collared me after my presentation and asked if I really thought York Region farmers could grow corn profitably in 2008? With near by futures months at about $4.75/bu I didn’t know if he was kidding. He went on to say he couldn’t make money-growing corn because with rising costs, it didn’t add up to him.
In York Region I notice quite a bit of corn still in the field. In fact I talked to two DTN subscribers who had 1100 acres still in the field. The snow had come and they hadn’t been in the field in a month. Now that the snow is gone, they are chomping at the bit to get back at it.
A few months later they’ll be back in the fields planting the 2008 crop. That’s of course if they can afford the inputs. I’m sure in two months the farm input hype machine will be in overdrive, driving the high price hysteria to its apex. With 5-7 million less corn acres next year it makes no sense. However, in this present overheated environment there seems to be a shortage of that. I’ll be taking my chances.