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Managing Farm Input Costs
Douglas Faller
Co-General Manager Agricultural Producers Association
of Saskatchewan (APAS) Crop Production Week/January 16, 2014
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Some Opening Thoughts This is intended to be practical BUT:
There are no magic bullets Some of this may be old news
Audience ideas and experience are welcome Some of this is from a broader, policy point
of view
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Look for Efficiencies
Soil Testing Nutrient volume and type Determine ROI, especially on minor nutrients
Variable Rate Application? Crop Choices/Rotations
N replacement Disease control
Determine ROI for fungicides/pesticides Variety Choice
Protein Disease control
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Commercial Relationships
Shop Around Volume Buying
Individual Jointly?
Cross Bundling Inputs Know competitive prices
Bundling Inputs with Production Marketing Understand the limitations/potential costs
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Market Intelligence
Input Price Surveys (to follow) Internet Forecasts - Google “Urea News”:
ICIS; CRU; DTN/Progressive Farmer; Stonegate Agricom; Fertecon
‘Farm Industry News’ (Nov.) forecast: lower 2014 U. S. fertilizer prices: ammonia 42
cents/lb.; phosphate 50 cents/lb. U. S. chemical prices up 1%
‘Farm Futures’ (Jan. 14) USDA Reports: Gulf Urea up $45 since Xmas to $374; UAN up
$12.50 to $262.50; phosphate moved higher 5
Input Price Surveys
Local: Fertilizer Buddy – Larry Weber Ontario – Ridgetown College, U of Guelph
May, June, October Compare ON to U.S.
Alberta Farm Input Price Survey USDA Global (online): IndexMundi
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Alberta Input Price Survey www.agric.gov.ab.ca/app21/farminputprices Alberta Agriculture and Rural Development Prices gathered through Alberta Federation
of Agriculture (formerly Wild Rose) 25 ‘monitors’ gather prices from retail outlets Since 1976 Monthly Fairly wide range of inputs Growing Forward (Federal) Funding
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SK Farm Input Price Survey (FIPS)
Started April 2000 / Ended October 2002 Replaced previous survey of retail outlets
in the 1980s Occasioned by Provincial Ag Ministers’
meetings
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FIPS Purposes
Provide timely input price information to farmers assist their production planning.
Stimulate awareness of the value of comparison shopping.
Replace discontinued sources of input price information and provide reliable data for program analysis and forecasting.
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FIPS Notes
Funding partnership with AAFC Administered by ADD Boards 230 data suppliers recruited by ADD Farmers paid to supply data Grain and livestock inputs 237 products Data supplied monthly (or continuously) Individual data kept confidential Data suppliers kept anonymous
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Methodological Firsts
Input price data supplied directly from farmers’ invoices rather than retail outlets More accurately reflect market conditions
Internet as the primary tool collection and dissemination of information Ease of submitting data, anonymity No data entry: save $s, limit data entry errors
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Communication of FIPS Results Online to farmers via interactive SK map
Available at three levels: Crop District; south/central/north; province wide.
Info timely, one month old or less.
Distributed to Rural Service Centres Some reports mailed to farmers Distributed to media monthly Monthly radio interviews
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A New SK Survey?
APAS asked M of Ag unsuccessfully for funding partnership for CAAP grant
FNA application to ACS for CAAP funding to do a survey was turned down
FNA competitiveness study (current) Analyzing competitive position of Canadian
farmers vs. international competitors Input costs a key parameter Results expected soon
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Some Questions
Are surveys worth doing in today’s market? Do producers want this information? Would producers prefer NOT to share the
information? Would producers participate in a survey? What strategies to control input prices do
producers in the audience have to share?
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Market Consolidation
Ongoing consolidation Glencore takeover of Viterra Agrium purchase of farm input distribution
Competition Bureau APAS identified info sources and experts, and
provided analysis APAS organized a Mossbank meeting (March)
Agrium agreed to divest 7 retail stores Agrium divests 9 NH3 business, supplies
NH3 to for 4 yrs. not above its own prices 16
Learnings from Bureau Process
Interruptions in supply occur – seeding halted waiting for fertilizer to arrive
Consolidation will reduce number of competitive suppliers
Just in time supply already a problem, will increase with fewer suppliers
Availability just as important as price Question: Availability at what price?
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Input Inventory Management
Fertilizer Storage Capacity Diesel Fuel Storage Capacity Fall Purchase
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Cost Price Squeeze
Producers have no control over prices on either side of production.
Input manufacturers/suppliers are able to extract excessive rent when grain prices go up.
“When farmers are making a lot more money, input suppliers all want to see their fair share of the profits.” (AARD Analyst, WP Nov 3/11)
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Virginia Tech Study Analyzed the relationship between corn and
nitrogen prices Jan. 2007 – Oct. 2010 Used USDA monthly prices Showed a nearly perfect positive
correlation between the price of corn at a given time and the price of nitrogen two months later
“… there is a high probability that if corn prices are trending upward, nitrogen prices will start to move up two months later”
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Urea production cost based on Yara cash cost calculator - USD/mt gr urea US Gulf ex works AB Urea costs based on price survey by AFA and AARD
Nitrogen Supply
Is there a lack of N production capacity – so bigger supply should bring lower prices?
Talk of more N capacity (WP April 12) Vertical Integration?
From the bottom up, i.e. by producers FNA nitrogen production initiative - ProjectN
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Some Other Costs
Foreign Exchange Hedging I think a couple of service providers exist
Interest Rates Don’t assume low rates long term Build flexibility into business plan to absorb
interest rate increases
Marketing Payment Protection Check new CGC payables insurance Trade credit insurance?
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Government Policy – Generics
PRMA run by Health Canada Generic registration in U.S. is 5-6 mos. vs.
18-24 mos. Canada, which extends patent protection here to multinational brands
Arbitration is too expensive Thus, 15% of Can. market is generic vs.
50% in U.S. and likely to decline Banvel/Refine/Axial/Folicur/Tilt/Select cost
$113M more in Canada (FNA estimate) Want lower input prices? Talk to your MP!
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Peak Phosphate?
“We may be able to substitute nuclear power for coal, and plastics for wood, and yeast for meat, and friendliness for isolation — but for phosphorus there is neither substitute nor replacement”. Isaac Asimov, 1974
“Our dwindling supply of phosphorus … threatens to disrupt food security across the planet during the coming century. This is the gravest natural resource shortage you've never heard of.” Foreign Policy magazine, 2011 26
Key Questions about Peak P Debate over how long rock phosphate will
last Cordell/White (Australia) see supply declining
sharply in next 50 years Some, especially phosphate producers suggest
two or three centuries availability
But, extraction costs will continue to rise Price of DAP is rising (chart to follow) Rock phosphate supply concentrated in
Morocco/Western Sahara 27
Dana Cordell/Stuart White 2011
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www.stonegateagricom.com/s/PhosphatePrices.aspricom 29
Remaining Global Phosphate Rock Reserves (2010, International Fertilizer Development Center (IFDC))
NOTE: 30
Geopolitical Responses In 2004 the United States signed a Free
Trade Agreement with Morocco.
In 2008 China imposed a 135% tariff on export of phosphate, largely eliminating exports.
Canada?
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Be open to other production/business models Crops that supply nutrients or pest control Crops with lower input demand Lower volume crops Integrated pest management Mixed farming Organic
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Review
Look for efficiencies in input use Shop around Look for volume and bundling discounts Gather market information
Price forecasts Input price surveys
Manage input inventories Plan for potential impacts of a wide range
of input costs 33
Review Buy together Vertical integration Look for generics Get policy makers working for you Consider alternate production systems Consider other business models
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Discussion Thank you!
Ideas and comments are welcome.
306-789-7774-3 dfaller@apas.ca
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