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| You can "set" your grain prices at any level you want just like you said. You choose to sell grain whenever you want at the market price. You're waiting for the price to reach the level you set. If it never gets to your level you can adjust your price or keep waiting. Fertilizer producers do the same thing although there is no CME price set each day so different fertilizer producers sell at different prices or maybe they can't sell even when they want to. Another way fertilizer sellers are in the same situation as a farmer selling his grain is that the price of fertilizer delivered to you means something different to every seller (different cost of freight). In many ways you might say this is similar to basis. Both sides have a market except that a farmer can sell his grain every day while a fertilizer producer needs a willing buyer and far too often they're difficult to find at any price.
Yet I always hear the same thing you're saying the farther down the chain and closer to the farm. I tried to explain to you that fertilizer prices are 100% market oriented but the more local your view the less you believe. You don't see all the factors impacting price and outlook every day, from energy prices to politics to weather, but what I think confuses you most is that the markets aren't liquid. This is the explanation for your claim of an (excuse). Fertilizer doesn't trade everywhere every day like oil or even as much as grain. You don't need it except for a couple months a year so you don't price it every day. You try to pick the day/days you think are best and many of the farmers and retailers go all in when they think the price is right (taking more people out of the day to day markets). If you don't need to buy and a seller doesn't need to sell it creates a standoff that can last months. I'm sure this seems like the people who sell to you aren't being "market responsive" but they're waiting to sell just like you wait to sell your grain.
Fertilizer producers run 24/7/365 unless the plant breaks down but they have limited storage so they need to sell. Obviously, with that scenario, prices will be lower in the off season which is why storage has value. But when producers sell enough at lower prices, maybe two weeks of production, a month or even six months, each producer approaches things differently, has a different risk tolerance, then they often try to increase the price. Sometimes it works but if they go too high imports will flow in and beat them or replacement products beat them (e.g. NH3 vs UAN vs urea vs manure). So if you think that because a fertilizer producer has a price sheet that they set their own prices you need to start over and get some more information. There are countless threats and the biggest is that a producer will have inventory left over after the season and prices will be lower or they'll be so full of inventory they'll have to shut down production. Fertilizer producers compete to be empty even harder than farmers and retailers.
Grain and fertilizer prices, why do they need to be linked aside from when you have big grain demand you need more fertilizer? A fertilizer plant is a 50+ year asset but grain demand fluctuates significantly. Take this year's corn crop as an example, up 5%. If there's enough fertilizer production to meet demand for this year's corn crop what about last year? There must have been excess capacity. It may surprise you but there's probably another 20% of fertilizer production capacity available this year above what demand will be and that will be with a 92-94 million ac corn crop. It's a dog fight on fertilizer every single year and that dog fight has resulted in North American farmers getting some seriously cheap fertilizer compared to the rest of the world. Yet you still think there's a conspiracy.
Of course there's always a cheaper price for fertilizer somewhere. I bet some South American farmers would really love to have the prices you're getting today. Unlike so many other commodities it's the time of year that impacts prices the most and if you have storage you can buy in the off season and keep it close but that costs money (that your retailer spent). It also means you're exposed to the volatility. A few years back oil prices tanked and fertilizer prices dropped because the cost of production dropped for hundreds of fertilizer producers (oil prices are related to gas prices because they come out of the same hole). Remember the financial crisis? Prices dropped by over 50%. Russia is a massive fertilizer producer but you think something could happen that limits or increases their fertilizer production? It certainly can but which way? I doubt you recall when China suddenly changed policy in 2007 forbidding exports of fertilizer and prices went up 50%. I'm sure you're thinking that producers were gouging. Wrong, without that supply producers, traders and retailers did the math to see how much could be produced and how fast to compensate for that loss of supply (grain demand didn't change so fertilizer demand didn't change). Then came the battle for buyers to make sure they got their tons. That's the way markets work and because demand doesn't come every day everywhere it's super volatile. When you wait you're adding pressure or when lots of buyers are all buying at the same time it adds pressure. I can promise you that you have no idea whether you're creating pressure that will favor you or hurt you and that's in large part due to weather.
Smart buyers layer in their purchases and get the average. Farmers are, by far, the least informed player in the fertilizer markets yet they gamble the biggest piece of the pie and when it doesn't go their way they cry foul. I can't imagine you have the time it would take to stay informed so start thinking about finding someone to trust who knows what factors are important and avoid the conspiracy claims. | |
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Anhydrous verses UAN and Urea
