What Effects the Price of Fertilizer?

The biggest concern for agriculture right now is some of the input prices because of the supply chains.

For example, fertilizer prices are about anywhere from 30 to say 40% of the cost of production for grain farmers. Keep in mind, if it's 30-40%, and some of those fertilizer prices have doubled and tripled, that eats at the profit margins pretty quickly. And because the price has gone up, we've gotten quite a few phone calls in the last few weeks inquiring what our thoughts are on what our clients should be doing.. Should they be buying some fertilizer, now? They're at a loss and it's easy to see why.

When 30% of your margin goes to fertilizer, and that doubles, it's going to be really tight. And so what farmers are thinking about doing is maybe buying just a little bit now in the fall, and seeing what the weather is like in the spring when they might buy the balance. If you cut back on your fertilizer, you're going to cut back on production and so that's going to add more pressure to the system and produce less grain.

I was reading a report that said in the next 8 to 10 years, something like $40-48 billion will be lost in revenue in the agriculture industry because of the cutbacks in terms of production.

So, if farmers are putting less fertilizer on the field because they can't afford it, that in essence will mean less production which means less supply which it's a vicious circle and I don't know what the answer to that is. COVID has created some of these supply chains to not to function efficiently like they have in the past and that is a big concern.

Understanding why...

Some of the plants aren't running, some aren't at full capacity because of COVID and some can't get some supplies or parts to run their plants. So, it's an ongoing chain that's broken. A supply chain is an interconnected arrangement and is only as strong as its weakest link. If you do not manage holistically transfer pricing, supply and services the financial health of the membership within the chain could be at risk.

I look forward to next week when I'll be talking about Something Else!

Fred Mertz
Fred@thevoiceofagriculture.ca