WINNIPEG – Retail fertilizer prices in Western Canada are linked to the futures prices in Chicago, but farmers have to know what to look for, says a merchandiser with Kansas City-based DeBruce Fertilizers.
Will Talbert said while there is a relationship between prices here and futures on the Chicago Board of Trade, there are a number of factors to consider:
- Futures prices are driven by the international export market in Florida, home to major diammonium phosphate producers. When world demand is weak, futures prices will likely drop.
- There are certain spreads between futures prices and posted prices at fertilizer terminals in cities like Minneapolis, Omaha, Kansas City and St. Louis. The spreads are narrow in the off season and wider in the spring and fall.
- There are also consistent spreads between terminal prices and both Canadian and U.S. farmgate prices.
- Cash prices lag four to six weeks behind the futures.
Read Also
Going beyond “Resistant” on crop seed labels
Variety resistance is getting more specific on crop disease pathogens, but that information must be conveyed in a way that actually helps producers make rotation decisions.
So, it isn’t enough to look at the direction futures prices are going. You also have to look at the spread between the futures and terminal prices.
A wide spread indicates a shifting market. For example, if futures prices were $185 (U.S.) per ton, and terminal prices were $245 (U.S.) per ton, market players know one price or the other is going to move.
To figure out which will move, you have to know something about international demand.
Talbert suggested a group of farmers could hire a broker to do the work for them. But Bob Thwaites, a broker with Merrill Lynch in Winter Park, Fla., noted the area is highly specialized, and few brokers understand fertilizer futures.
John Malinowski, manager of sales and marketing at J.R. Simplot in Brandon, Man., said fertilizer retail prices are also affected by local supply and demand.
Malinowski said it’s hard to define what percentage of price is due to local factors because it’s always changing, and is very sensitive to transportation costs.
For example, when crops here are priced high, demand for fertilizer is strong, and will push prices higher even if international demand is falling off.
“When (fertilizer) prices were down in the late ’80s and early ’90s, they were really down in Western Canada,” Malinowski said. “But now they’re probably as strong because … the crops that western Canadian farmers produce are very much commodity products as well.”
Malinowski said farmers shouldn’t place too much stock in tracking futures prices.
“You have to use it for what it can be used for,” Malinowski said, noting the CBOT reflects the world market. “But if you’re going to make decisions on that, you’re going to make mistakes.”
He said he doesn’t pay much attention to the futures prices, preferring instead to gather his own supply and demand information from other sources.
“The thing about the futures market is it brings in the element of speculation whereas cold, hard facts don’t.”
