Glacier FarmMedia – Farmers can breathe a sigh of relief knowing crop input prices have stabilized as the world adapts to global supply challenges.
The difference between climate and weather
When media talk about climate change, a lot of confusion can arise, and that can negatively impact what needs to…
That was the message as Farm Credit Canada provided its latest update on input prices for the 2024 crop year.
Why it matters: Wild price swings for crop inputs, especially fertilizer, appear to be over, but farmers should keep abreast of issues that might affect prices as they plan for spring planting.
Fertilizer prices reached new highs in 2022 when the war in Ukraine threw a wrench in the machinery of global supply that was already tight. For months, chaos reigned in the markets as a result of the conflict and related international sanctions against Russia and its ally, Belarus.
Natural gas prices skyrocketed as Russian supply choked off, leaving previous European customers scrambling to find new suppliers. Russia was previously Europe’s main supplier of natural gas, while both Russia and Belarus are important fertilizer exporters. With that supply off the table, global fertilizer demand surged.
Today, FCC experts said, the world seems to have acclimatized to a new normal.
“It’s safe to say the world got used to trading these different commodities from elsewhere in the region,” said Leigh Anderson, senior economist with FCC and author of the organization’s 2024 Crop Input Outlook.
As demand softened because of high prices, global fertilizer production and supply increased. Russia was heavily embargoed on the international stage but found markets for its fertilizer. China also re-entered the urea export market, pushing global production volumes.
“While there’s not necessarily a price premium anymore, we’ve gotten comfortable with the other suppliers filling that void,” Anderson said.
However, the economist warns that European production isn’t certain and China is unpredictable.
“China will still be a wild card if, for whatever reason, they change policy,” said Anderson. “That’s on most commodities; they can always change their decision on a dime. We’ve seen that in other markets and commodities over the years.”
But for now, Anderson said there seems to be a sense of equilibrium as ripple effects of the previous market rollercoaster are working their way through the system.
Producers may have lower prices, but efforts to predict supply and demand during volatile times were a challenge for retailers.
After the spikes in 2022, fertilizer prices collapsed. Retailers who had committed to buying supply at those higher prices were left holding the bag.
“Most of us had a pretty huge debacle in terms of selling at a negative margin,” said Ray Redfern, president and CEO of Redfern Farm Services, a crop input retailer based in southwestern Manitoba.
“The reality is that we’re going to be even more nervous about making a long-term commitment for fear that we have a situation where we lose hundreds of dollars per tonne on everything that we sell.”
If retailers shy away from pre-orders, producers could have limited options and may have to settle for whatever retailers have on hand. Redfern said supply remains tight for many fertilizer products and prices are expected to remain under pressure early into the New Year.
Drought conditions in the Canadian Prairies, which have reached crisis levels in some parts of the West, could also soften demand, since lack of moisture could mean more residual nitrogen in the soil.
The global recovery of agro-chemical production, along with softer demand, has led to increased global supplies, according to FCC.
“Overall, global prices have moderated for both glyphosate and glufosinate,” the lender said in its report.
Redfern sees more price stability in all the crop protection products his company offers.
“For crop protection products, whether it’s fungicides or herbicides, that market is more stable,” he said.
“There is less uncertainty in terms of product supply now that the supply chains are working as they should.”
On fuel, FCC suggests that diesel prices will trend lower in 2024 as global economic growth slows.
“Our preliminary estimate indicates that farm diesel prices will be 2.8 [per cent] lower in 2024,” the report said. It cautioned that continued global uncertainty and low U.S. supply could keep prices high.
Anderson’s report indicated several factors can affect the market and producers should keep their ears to the ground.
Canadian crop receipts were up 19.8 per cent for the first half of 2023, driven by strong sales of canola and wheat. But in drought-stricken areas, crop receipts are expected to decline significantly this year and into the first half of 2024.
“Strong farm cash flow remains key to crop input sales,” said the report. “Pre-purchase trends for the remainder of 2023 may provide an early indication of what the sector can expect for 2024.”
There are also general economic factors to consider. The Bank of Canada held its policy rate last month, which could indicate a plateau in interest rate hikes. FCC predicts interest rates will lower by the second half of 2024 as the global and Canadian economies weaken.
– This article was originally published at the Manitoba Co-operator.