Amid rising input costs, North American farmers are breathing a sign of relief thanks to higher commodity prices on several key crops, which comes just in time for growers to lock in their fertilizer, chemical, and ag machinery purchases for next year, Sam Taylor, senior analyst for crop inputs at Rabobank, told AgNavigator.
Commodity prices for major grain crops like corn and soybean have risen, putting more money in farmers’ pockets, Taylor noted. Since the start of the year, soybean futures have jumped 26.39% while corn was up 20.57%, according to Google Finance data accessed on Sept. 24.
“If you look at a weighted basket of nutrients that a farmer might purchase to grow corn or soybean, affordability is better than it was this time last year, which is the good news. So, you’re talking about expensive inputs that commodity prices have started to put the legwork in, and so they’ve made things look a little bit more affordable,” he elaborated.
Despite the increase in price commodities, the ag economy is still grappling with higher fertilizer prices, driven in large part from the ongoing Strait of Hormuz uncertainty, geopolitics, and energy markets.
Anhydrous ammonia (a key nitrogen fertilizer) is up 25% in July year-over-year, and phosphate prices are up roughly 8% as well, according to Rabobank analysis. Additionally, phosphate price and availability concerns are growing given the Strait of Hormuz’s importance to the global trade of sulfur, a key pre-cursor to phosphorous, Taylor noted.
“We’ve already started to hit the demand destruction button on the phosphates, and the phosphates are caught in the vortex of geopolitics. [It’s] not just urea caught in the Strait of Hormuz dynamics, but phosphates have got a visceral exposure to there,” Taylor elaborated.
The recipe for boosting adoption of biologicals
While farmers are rationalizing and rethinking their crop nutrient decisions, biological adoption still faces a number of challenges tied to their economics and distribution, thus will only provide some relief to current dynamics, Taylor explained.
Retail distribution “has not been an effective driver” of biological adoption because the channel is “focused on driving high-volume, low-margin products,” which is “a little bit antithetical to what biologicals are said to offer,” he added.
Biologicals benefit from “a high commodity price environment and a high-cost structure. So, you look at the incentives that could drive farmers to adopt [biologicals]. It’s those two things that you really want. That’s why we saw a real acceleration of growth in these products in 2021/22, when commodity prices were very strong, but the opportunity cost of being able to offset X pounds of nitrogen with a product really did have a nice economic return,” he elaborated.
Beyond farm economic factors and distribution, biologicals do not have a uniform product-market fit across geographies, which is why bio-based inputs have gained ground in Brazil where pest pressures are high, while North America has lagged given that weeds are a bigger concern, he added.
OEMs could benefit from higher commodity prices
Ag machinery was another input that faced demand destruction during recent years, but growth is expected to return slowly on better farming economics, pent up demand, and low inventories, Talyor explained.
Major original equipment manufacturers (OEMs) responded to the initial slowdown in machine purchases by manufacturing fewer machines. Recently, OEMs like John Deere and AGCO signaled that the machine market might be emerging from the down-market cycle.
“When you see this pull through from farmers that everyone’s expecting, it will translate into not a drawdown in inventory, but a pull forward through of OEM sales into the distribution channel, so that’s very positive,” Taylor said. “They’ve always seemed to maintain some semblance of pricing power. So even if you see unit sales increasing by a marginal area amount — 1% on a year-over-year basis — that will translate into a higher top-line growth for these OEMs.”
