A Fractured Way Forward: Farm Input Costs Explode Into 2008/09

Thanks goodness for Julie Couillard. At least for the moment she made me forget about the price of anhydrous ammonia. I was still reeling from the sticker shock when I heard that Canada’s foreign affairs minister Maxime Bernier had resigned because he left some sensitive cabinet documents at Julie Couillard’s apartment. Who knows, maybe he lost his mind for a moment thinking about the same price as he whispered it to Julie Couillard. All I had to do was walk back to my truck. Poor Maxime Bernier got plum kicked out of the best job he ever had.

For my American readers Maxime Bernier is the equivalent to your Condoleeza Rice. Julie Couillard claims her bedroom was bugged and opposition politicians in Canada are having a field day. Bernier, the popular MP from the rich farming region of the Beauce south of Quebec City finds himself relegated to the far backbenches of parliament. With very few Quebec members, Quebec agriculture will be worse for it.

Nonetheless, back to those anhydrous prices. I had a brief correspondence with my DTN colleague Jerry Gulke last week. He writes an excellent piece, one I read each weekend. In one of his latest pieces, he wrote this.

“I doubt the marketplace understands, but the realization that we may have to put nearly 100 percent of our money up front to plant the 2009 corn crop that is nearly twice the gross income of a few years ago has yet to sink in with farmers, let alone end users.” (Jerry Gulke DTN columnist May 23, 2008)

I found this one hard to fathom, so I wrote Jerry a note to ask him what he meant. I’ll paraphrase here, because I want to keep private correspondence private. However, Jerry intimated to me that his remarks referred to American farmers having to come up with 100% of their spring 2009 needs up front with no guarantee that suppliers will take it back on any unused portion. So in essence I took it to mean there is so much volatility moving forward in the fertilizer market, suppliers are not only going to demand cash on the barrel head, but cash in advance. My head is still spinning on that one.

From my perspective, where we are now should be a moment of rejoicing. With $5 corn and $12 soybeans, it would seem the stuff that dreams are made of. However, Jerry Gulke’s words ring true to me because I can see the same thing happening in Canada. For instance if you haven’t paid your farm input bills yet, you’re in for sticker shock. I agree with Jerry Gulke that Canadian farmers haven’t had it sink in yet and our end users certainly haven’t got it either. In essence, our new Canadian prices levels are being impacted by rising costs out of control. You’d better get good prices, because going back to the old days, definitely won’t work into 2008 and 2009.

So let’s rewind a moment to my Maxime Bernier/Julie Couillard moment. I knew anhydrous was a lot more money this year, but I didn’t know it was 100% more than last year! I’ve never believed the China and India scam, (I’ve been both places and I didn’t see it) so when I got told I had on one of those frozen smiles, something like Maxime Bernier when he went back for his briefing notes. There is nothing like a Quebec women scorned and there is nothing like getting taken to the cleaners by fertilizer oligopolies gouging unwilling farmers.

Simply put our new Canadian agricultural economic world might be fooling us. Yes, we are and continue to move to new average price levels. Yes, it’s better, at least at first glance than the bad old days of $5 soybeans, $2 corn and $2.75 wheat. However, fertilizer costs have risen so much, it is not making economic and intuitive sense. For instance a doubling of fertilizer prices cannot be sustained because at a certain point it make no sense and demand will drop. Also at a certain point, corn production doesn’t make any sense at these fertilizer prices. In essence we’re entering a world never navigated before and many of us, including myself may be kidding ourselves.

It’s like we’re all Maxime Bernier knocking on Julie Couillard’s door. It’s seems like such a good idea, but it isn’t such a good idea now. I mean what am I going to do now that my corn is at the three-leaf stage, tear it up and grow something else? I don’t think so. I think I’ll pay the anhydrous bill and give serious second thought to going down this road again.

However, many of us have had our Julie Couillard’s in our life, whether that is corn, beans, jatropha or some other dalliance. Going into June 2008, let me tell you, not everything is, as it seems. The road ahead, might be lined with higher prices, but it surely presents whole new problems we’ve never imagined before.

An Ontario farmer asked me last week if I thought $6.25/bushel corn currently being offered for July 2009 at an Ontario ethanol plant was enough? I almost scolded him as I recounted the days of $2 corn. However, in retrospect with costs exploding and our agricultural world fracturing, not so fast. Maybe he had a point.