What's up with Fertilizer besides Prices?

February 2015

Hello to all our customers and friends,

            So far the anticipated snow has been in New England and the Texas Panhandle with three feet accumulations.  The big snows have been north and south of us; we won’t know if that is good or bad until some of it hits us.

           The present lull in activity is allowing producers to visit their FSA offices and update yields and base allocations that are due by 2/27/15.  We are now only 60 days from the decision date for farm program sign up in either PLC or ARC which is 3/31/15.  These farm programs are five year commitments that stay with the land and are retroactive to 2014.  This can complicate recent real estate sales because the previous owner may be involved.  As I’ve stated before, this is probably not a quick visit to your FSA office unless you are well informed.  

            The markets are all flustered again and making no sense.  The USDA reported planted wheat acres went down and yet the price went down also.  Cattle prices have declined and yet there does not seem to be any real rational other than they can.  The manipulation of the market by the market makers does not need to be based on fundamentals.  As for the cattle basics, we have not magically produced thousands more cattle.  This is generally a slow process but the fat cattle market has dropped on the board from $1.72/lb to the present $1.51 or about a $275 drop per head.  While higher grading cattle can make up about 50% of that difference it is still a marked drop.  The feeder cattle market has a similar profile of losing $165 per head in value.  In the last 30 days, corn has lost $.25/ bu on the board from $4.12 to $3.86.  Wheat is down about $.80 and soybeans are down about $.40 per bu.  With these price drops in commodities it is difficult for crops and livestock to make a positive cash flow.  The main reason is that while the commodity prices are low it is the input costs that are wrecking farming right now.  The national average price for anhydrous fertilizer (nitrogen) is $709.00 per ton.  Natural gas on the board is $2.88 per million BTU.  It takes 37 million BTU to produce 1 ton of anhydrous.  So the actual cost of production is about $110 per ton.  Add 20% profit and $40 per ton transportation and shrinkage and, anyway you cut it, anhydrous should be less than $200 per ton, not $700.  I think $500 per ton profit is a ridiculous profit.  National average corn yield of 170 bu/acre and 1.25 lbs of nitrogen per bushel would require about 200 lbs of fertilizer at 82% nitrogen.  The fertilizer producers are making about $55 per acre profit while farmers struggle to make any money.    

Until next month,  Myron