Do economic trends support fall fertilizer purchase?

Fertilizer prices are expected to trend slightly higher for the upcoming crop year despite weakening energy and agriculture commodity prices. There are two factors driving the fertilizer pricing patterns.

 

1. Seasonality

Prices are often higher in the spring during peak demand and tapering off through the summer and fall before picking up again towards December. Fertilizer demand varies across farm operations according to application levels, storage, cash flow, borrowing costs and tax planning.

2. Market conditions

World corn supplies are expected to increase due to improved production in major producing countries. Commodity prices, most notably oil, have experienced a very sharp decline in 2015 resulting in lower natural gas prices and a much lower Canadian dollar. The outlook for the commodity markets remains soft; however a cold winter could cause a spike in demand for natural gas and lead to higher prices. 

Despite a projection of continued weakness in prices of grains and oilseeds, FCC Ag Economists forecast a small increase in fertilizer prices, between two and five per cent from fall 2015 to spring 2016.

Our forecast is a function of the connections between the economic factors listed above. The primary driver for this increase is weakness in the Canadian dollar. If the loonie experiences further devaluation against the U.S. dollar, fertilizer prices could increase even further.

Producers would benefit from a sound risk management plan that accounts for the impact on future profitability of various scenarios related to commodity and farm input prices.

Leigh Anderson, Senior Agricultural Economist