Input Prices:
Long Term Trends and
Short Term Realities
Paul D. Mitchell
Agricultural and Applied Economics
University of Wisconsin-Madison
UWEX and WPVGA Annual Growers Conference
February 3, 2009
Stevens Point, WI
Goal Today


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Overview of Input and Output Prices
Where they are now (short-term)
Where they are going (long-term)
Fertilizer prices are still high
Fertilizer
Jan
2007a
Jan
2008a
Feb
2008b
Aug
2008c
Nov
2008a
Feb
2009a
Urea
410
505
500
815
---
585
Anhydrous
515
775
715
1095
1160
985
32% N Solution
270
405
405
535
560
395
Ammonium Sulfate
210
240
325
510
500
300
DAP
335
580
625
1185
1150
795
Potash
255
420
515
820
820
795
aLandmark
Coop
bFrontier
FS Coop
cInformal
Survey Average
1200
1000
Prcie ($/ton)
800
600
Urea
Anhydrous
32% N/UAN
400
200
0
Jan-07 Apr-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09
1200
1000
Price ($/ton)
800
600
400
200
0
Jan-07 Apr-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09
Ammonium Sulfate
DAP
Potash
Higher than last year,
but not as high as this summer
Fertilizer
Jan
2008
Summer
Max
Feb
2009
%D
from 2008
%D
from Max
Urea
505
935
585
16%
-37%
Anhydrous
775
1235
985
27%
-20%
32% N Solution
405
535
395
-2%
-26%
Ammonium Sulfate
240
539
300
25%
-44%
DAP
580
1244
795
37%
-36%
Potash
420
930
795
89%
-15%
1385
988
10-34-0
-29%
Price Indexes
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USDA NASS publishes monthly price
indexes for many ag outputs and inputs
http://usda.mannlib.cornell.edu/MannUsda
/viewDocumentInfo.do?documentID=1002
National average price for the many items
in a category, weighted by sales volumes
Many categories not reported here
Normalized so 1990-1992 Average = 100
700
Price Index (1992 = 100)
600
500
400
N
P&K
300
200
100
Fertilizer
Prices
0
Jan-06 Apr-06 Jul-06 Oct-06 Feb-07 May-07 Aug-07 Dec-07 Mar-08 Jun-08 Sep-08 Jan-09
700
650
Price Index (1992 = 100)
600
550
500
N
P&K
450
400
350
300
250
200
Jan-08
Feb-08 Mar-08 Apr-08
Jun-08
Jul-08
Aug-08 Oct-08 Nov-08 Dec-08 Feb-09
Short-Term Fertilizer Prices

Don’t expect prices to go much lower


Companies believe they are priced about right
for world demand and grain markets
Supply going to be the issue





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Pre-purchased/contracted are in good shape
Poor fall application window, lots of waiting
Warehouses full, no slack in system
Companies not holding excesses anymore
Decide what you want and get it ordered asap
If waiting to buy, could be serious trouble
200
180
Price Index (1992 = 100)
160
140
120
Herbicides
Insecticides
Fungicides
100
80
60
40
20
Chemical
Prices
0
Jan-06 Apr-06 Jul-06 Oct-06 Feb-07 May-07 Aug-07 Dec-07 Mar-08 Jun-08 Sep-08 Jan-09
180
Price Index (1992 = 100)
170
160
150
Herbicides
Insecticides
Fungicides
140
130
120
110
100
Jan-08
Feb-08 Mar-08 Apr-08 Jun-08
Jul-08
Aug-08 Oct-08 Nov-08 Dec-08 Feb-09
Short-Term Chemical Prices

Chemicals higher than last year (~15%)


Fairly flat since summer
Supply also going to be the issue



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Pre-purchased/contracted are in good shape
Lots of waiting by farmers, companies not
overstocking or over producing
If acres shift to soybeans, shortages will occur
If wait too long, get “shotgun” of chemicals,
not your specific needs, and cost more
Decide what you want and get it ordered asap
500
450
Price Index (1992 = 100)
400
350
300
Diesel
LP
250
200
150
100
50
Fuel
Prices
0
Jan-06 Apr-06 Jul-06 Oct-06 Feb-07 May-07 Aug-07 Dec-07 Mar-08 Jun-08 Sep-08 Jan-09
500
Price Index (1992 = 100)
450
400
350
Diesel
LP
300
250
200
150
100
Jan-08
Feb-08 Mar-08 Apr-08 Jun-08
Jul-08
Aug-08 Oct-08 Nov-08 Dec-08 Feb-09
Short-Term Energy Prices

Diesel: Prices about same as 2 years ago
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
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LP: Prices lower than have been for awhile


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Jan 2009: 30% lower than in Jan 2008
Jan 2009: 4% lower than in Jan 2007
Jan 2009: 49% lower than in Jan 2008
Jan 2009: 20% lower than in Jan 2007
Both may have lower to go
Long-Term Input Prices
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Depends on interrelated factors
World demand for meat/grain
Energy prices
Exchange rates
All three depend significantly on how bad
the global meltdown is/becomes and how
long it lasts
Global Input Demand

China, India, Brazil: major drivers of
increased demand that increased prices,
but demand slowed now with meltdown



Export driven economies hit hard
 Less money for meat/grain demand
Farmers have less access to credit than in US
Exchange rates further increasing input prices
and prices of imported meat/grain
Energy and Exchange Rates

Energy Prices: Transportation and N Prices


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Driven by global demand, so how bad will the
global meltdown be and when will it end?
New natural gas plants around world on line,
U.S. seen as place to soak up excess supply
Expect some downward pressure on N prices
Exchange rates: dollar strengthening, so
increase costs of inputs and imports for
other nations
Long Term:
What to Expect from Suppliers

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Shift in willingness to hold excess supply
More formality in pre-pricing/contracting
Will expect growers to be very specific on
needs in advance and take what order
Plan ahead & place your orders, don’t wait
and expect them to have what you want
Want to push some of the input price risk
on to farmers
Land Rents
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Landlords may be playing catch up
With input and output price uncertainty,
margin risk larger than before
Flexible Cash Leases more popular


FSA changed the rules, so don’t need to share
govt. payments as in years past
Check with FSA to be sure your lease qualifies
as not needing to share payments
Flexible Cash Leases
Act. Yld  Act. Price
Formula: Base rent 
Base Yld  Base Price

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Set max rent and/or min rent to share
upside and/or downside risk
Examples: Google “Flexible Cash Lease”
Contact me, I’ve sent links/examples
If must use fixed rent, set final rate in
Mar/Apr or ask to renegotiate then

Input and output prices more clear by then
Credit: Another Input

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Banks are getting tighter on credit
Anecdotes only, no data
Farmers going to bank to ask for operating
credit to buy inputs

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“Sell 80 acres and come back in”
“Won't lend you the money if you pay that
rental rate”
Talk to your banker!!!
What’s Going on with Output Prices?

Grain prices have decreased and become
more volatile

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Ethanol/biodiesel prices falling as crude oil
and diesel prices decline
Dollar stronger, so export demand declined
Livestock prices falling, so less grain demand
World demand uncertainty increased with the
financial crisis/recession
USDA Monthly Average Prices Received by Farmers
14.00
12.00
Price ($/bu)
10.00
8.00
Wheat
Corn
Soybeans
6.00
4.00
2.00
0.00
Jan-07 Apr-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08
CBOT Contract
Peak
Price*
Current
Decrease
Dec. Corn
June
7.99
4.16
-48%
Nov. Soybeans
July
16.37
9.25
-43%
March
12.75
6.33
-50%
Dec. Wheat
Source: *Darrel Good (U of IL)
Grain Prices
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Soybean futures prices fell less and have
been climbing relative to corn and wheat
Will there be a significant acreage shift to
soybeans in 2009?
Acreage shift to soybeans will affect short
term fertilizer and chemical input
availability and prices to some extent
What about Potatoes and Vegetables?
250
Prcie Index (1992 = 100)
200
150
Vegetables
Potatoes
100
50
0
Jan-06 Apr-06 Jul-06 Oct-06 Feb-07 May-07 Aug-07 Dec-07 Mar-08 Jun-08 Sep-08 Jan-09
USDA-NASS national monthly price index for
prices received by farmers
Same Data Regression Fit
250
Price Index (1992=100)
200
150
Vegetables
Potatoes
Veg Fit
100
50
0
Jan-06 Apr-06 Jul-06 Oct-06 Feb-07 May-07 Aug-07 Dec-07 Mar-08 Jun-08 Sep-08 Jan-09
Average annual increase over the last 3 years
Vegetables = 5.4%, Potatoes = 13.8%, > Inflation
Pot Fit
USDA-AMS weekly average prices
received at terminal markets for
Central Wisconsin fresh potatoes
30
Price ($/50 lbs)
25
20
Norkotah 70s
15
Norkotah 5x10lbs
Round Red Bs
10
5
0
7/28/2007
11/5/2007
2/13/2008
5/23/2008
8/31/2008
12/9/2008
Fresh Potato Prices
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Round Red B’s have followed the
“standard” post-harvest trend
Russets: Have not seen the post-harvest
price increase that had last year
 When will they bottom out?
Retail demand for fresh potatoes falling
with lower consumer income
Summary: Short Term


Input prices are about where they are
going to be in short term
Availability the big issue now, not price


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Some farmers are not going to get what they
want when they want it
Don’t wait, or you may be one of these
Soybean acres will have important effect on
chemical and fertilizer availability
Rents: flex cash leases or renegotiate
Stay in communication with your banker
Summary: Long Term

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It all depends on how bad it gets around the
world and when it ends
Expect changes from suppliers: less willing to
carry stock and more pre-planning on your part
My opinion: We will have a few years of lower
input prices, but eventually the global economy
will start to roll again

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Input and output prices will increase again
Use the next few years to prepare
Increase energy and input use efficiency
Questions?
Paul D. Mitchell
UW-Madison Ag & Applied Economics
Office: (608) 265-6514
Cell: (608) 320-1162
Email: pdmitchell@wisc.edu
Extension Web Page:
www.aae.wisc.edu/mitchell/extension.htm