With this year’s crop out of the fields, it’s time to start acquiring the seeds, fertilizer and pesticides you’ll need next spring.
Many products are more expensive than they were a year or two ago, so you’re no doubt eager to get the best price.
Instead of seeking the deal of a lifetime, Extension advisers say, it’s best to build a methodical plan that limits your risk of paying the highest prices.
“You’re not going to make a fortune having hedged fertilizer purchases, but you really decrease your potential for really bad outcomes,” Matthew Gammans, a Michigan State University ag economist, said in a Nov. 22 webinar.
Here’s what that means, according to Gammans and Jon LaPorte, a farm business management educator at Michigan State University Extension.
Start from a solid crop plan.
The first step, unexciting as it might seem, is to stay the course with your crop rotation.
High fertilizer prices sometimes spook farmers into disrupting the procession of soybean to corn or corn to soybean, but those departures might not make agronomic sense.
“Trying to do something crazy to game some fertilizer markets is just a losing strategy long term, I think,” Gammans said.
It’s OK to have some flex acres that, based on nitrogen prices, could go to either corn or beans, or even be diversified to wheat or potatoes. But those acres should be the last piece of your plan, not the bulk of it, LaPorte said.
Of course, working from a solid crop plan assumes you have a crop plan to begin with. LaPorte recommends writing down your crops and yield goals, nutrient needs based on a soil test, and pest concerns. You might even consider what crop you plan to plant on each field next year.
Taking the time to put these basic details on paper is not revolutionary, but it will help you gauge how much of each product you’ll need, LaPorte said.
Increase your budget.
You know prices are up, so there’s nothing to be gained by planning as if they are not.
“They don’t tend to go down as fast as what they went up,” LaPorte said.
It’s possible, but far from certain, that prices will continue to soften. Natural gas is a key component of nitrogen prices, and U.S. natural gas prices have dropped since a summer surge.
But prices could rise if there’s a harsh winter in the U.S. or Europe, where prices remain high and supply is a concern because of major exporter Russia’s war with Ukraine.
“As if it weren’t bad enough how much our farm profitability depends on variation in precipitation in July, now we have to worry about whether or not Denmark has a warm or cold winter,” Gammans said.
Crop protectant and seed prices have not been on a wild ride like fertilizer markets, but they have still seen a slow and steady increase. That rise is connected to the strength of crop prices, as well as inflation in the broader economy, Gammans said.
Buy in chunks.
Spreading out your purchases spreads out risk. Purchasing in 25% increments (or a different amount that suits your risk tolerance) won’t get you the lowest price every time, but it prevents you from holding out for a deal that never comes.
“Farming is risky enough,” Gammans said. “We’re not looking for opportunities to speculate more on top of it.”
The key to this strategy is setting dates by which you plan to purchase certain percentages of your inputs.
“We know that we’re going to buy, say, by the end of November, but if we’re going to buy earlier than that, we want to really be getting a great price,” Gammans said.
In December, you can still try for a deal, but you probably shouldn’t be as ambitious about the depth of the discount as in the fall. By January, you can feel OK buying at market price, and after that, you’re at the mercy of the market, Gammans said.
Use on-farm storage if you have it.
Whether a shed for dry products or a tank for liquids, storage for inputs can provide flexibility and peace of mind. Plus, there’s little reason to let this farm infrastructure sit empty.
“If a farm’s invested in storage and they’re not utilizing it, well, it’s not making you any money. And if you’re still paying on a loan or you’re paying on anything for it, it’s certainly costing you money,” LaPorte said.
After 2021’s across-the-board supply issues, this year’s input shortages are limited to specific products and may vary by dealer, he said. Storage could help you secure products, especially your high priority items, if you are concerned they could be difficult to get in a few months.
You’ll also need storage if you plan to buy in bulk to get a volume discount, Gammans said.
Take advantage of discounts.
If you can pay early, vendors may offer low interest rates on credit purchases or percentages off cash sales.
Quantity discounts can be great for products that you need in the largest amounts, though you may need to adjust your plan for spacing out purchases.
“Do the math on these discounts, and if you see one that’s a good deal on a per-acre basis, then yeah, jump at it,” Gammans said.
To increase your confidence that a quantity discount will contribute to profitability, lock in the price for a portion of your grain crop, he said. Then you will know how much you can spend while staying in the black.
Discounts of all kinds tend to dry up after Jan. 1 as retailers finish selling the quantities they prepurchased, LaPorte said. So to get a promotional rate, you may want to act soon.