It would be wise to heed the conventional wisdom that fall is a good time to buy fertilizer, says Farm Credit Canada.
An FCC analysis of the major factors that influence fertilizer prices suggests farmers should buy before the end of the year.
The model concludes that fertilizer prices will likely increase two to five percent from fall 2015 to spring 2016.
“If you wait into the new year, it’s probably too late and prices (will) start to jump,” said FCC chief agricultural economist J.P. Gervais.
“If there is any drop between now and early (2016), I think that would be a good time to buy.”
Rising fertilizer prices at a time of plummeting natural gas prices and lacklustre corn prices seems counterintuitive.
“The reality now is that fertilizer prices have decoupled from natural gas prices, and that’s been going on for a number of years,” said Gervais.
Corn prices still have an influence, but it is not as pronounced as it was three or four years ago.
He doesn’t know why natural gas and corn prices have become less important factors in determining fertilizer prices.
“I don’t have an explanation for this,” said Gervais.
Today’s real driver is the exchange rate as the faltering Canadian dollar makes fertilizer more expensive. Gervais said the lower the dollar, the more influence it appears to have on fertilizer prices.
He holds little hope that the Canadian dollar will strengthen, given the excess oil supply on the market and the likelihood of the United States raising interest rates.
“I’m not really bullish on the Canadian dollar,” he said.
Dan Mazier, president of Manitoba’s Keystone Agricultural Producers, used to work at the Simplot fertilizer plant in Brandon before it was bought by Koch Fertilizer.
At that time, fertilizer prices were heavily influenced by natural gas prices. Mazier is baffled why that relationship no longer exists when he is pricing out nitrogen fertilizer for his farm near Justice, Man.
“I don’t get that part of the equation. The price of energy is down. It’s at rock bottom. So what else would be costing more to manufacture fertilizer?” he said.
“The pricing is absolutely crazy, what’s going on right now. I don’t know how they justify $700 to $800 per tonne for nitrogen fertilizer and how they jack it up. I don’t get that.”
Mazier understands how the weakening Canadian dollar makes inputs more expensive, but he wonders why slumping grain and natural gas prices don’t seem to matter anymore.
“I’ve still got a sinking feeling that there’s some other thing going on.”
He thinks it might have to do with industry consolidation.