I am Phipps: Destroyer of Demand...

Gosh - that sounds more dangerous than most descriptions I've heard.  And trust me, I am going to destroy a little demand for inputs, and I suspect I'm not alone.  I don't believe in organized boycotts, but many of us will arrive at the same conclusions based on similar data. Not only that, be we may have some powerful help.

Consider this comment from below:

Please tell me how a lender, (I am a lender and a farmer) is going to justify an annual operating loan or line of credit to plant 2009 crops? (even if we have the money to lend, remember FSA raised the loan limits by 50% with no increase in funding, so the current funding could be exhausted on only 66% of current borrowers!!) We need a positive cash flow and at current crop prices and input costs are going to make that difficult. I was told yesterday that soybeans will be $54 for 50# bag next year. (Do I have enough Monsanto stock??!!!) $70 seed cost, $50 chemicals, $150 fertilizer, $125 machinery, and $225 for land needs national average of 155 bpa at $4.00 to break even. I remember talk about Brazil farmers not being able to plant crops beacuse financing was not available several years ago when inflation was rampant. Maybe the canary is indeed coughing!! My fence post or seat of the tractor economics would say we need to lower interest to get liquidity into these markets and get some kind of floor under everything right now, and since we can not produce our selves out of this 'crisis', we need to get out of the way as we need to inflate ourselves out of this.

Thus is the same story my spreadsheet is telling me, and buying seed and fertilizer differently is one of highest paybacks I see to help me creep back toward a black bottom line.

Several reasons for this action.  First, I am soil sampling everything, and for the most part my P & K are in very good shape.  But more importantly, it took several years of massive applications to raise those levels to where they are. I suspect one year of underapplying won't even be seen in subsequent tests.  Ken Ferrie has convinced me we are not even close to utilizing our latent soil nutrients.  And my European buddies have produced enormous yields with rationed fertilizer for years.

In short, we may be about to change the rules for fertilizer application - and I don't think this vast experiment is what fertilizer producers really intended to happen.  Stratospheric prices will reward nutrient use efficiency big-time.

Second, although the input industry argument of costly seed and fertilizer will generate higher yields, they don't offer any money back guarantees for those increases, I notice.  The odds of them getting my hundreds of dollars per acre are 100% (my checks don't bounce).  However, the odds of me getting the promised returns are not as high, and have frequently been disappointing.

Third, the premium for non-GMO corn has jumped again, and with corn now below $4, it represents a significant boost - unlike when were selling for $6+.  Conventional seed is almost $180 cheaper than the hot numbers.  These are the same hybrids I loved just a few years ago, and I can handle the first-year rootworm pretty well to date.

To be fair, seed corn prices in my area have broken from the hardline "red-faced" ultimatum we heard just a few weeks ago.  I've been hearing "whatever it takes" and "we'll work with you" instead of "take it or leave it".  Recent seed company profit announcements add a little secret revenge in saying no as well.  Call me a flawed human being, I guess.

But the comment above is the real clincher. There is no bank so sound it can underwrite business plans that bet on the come in any industry. Auditors will be all over loan apps for the next three decades or so.  If I can't show a healthy margin with numbers obtainable right now, I won't get scarce credit. 

My sources in the fertilizer industry indicate they are convinced the days of "5/90" will be back soon: $5 corn and 90 million acres.  Also the emerging economies will snap back ferociously to gobble up anything at any price. But their dealers are getting nervous about piles of P & K in their warehouses that are not being spread, even if booked.

Input suppliers are going to have to learn the same lessons the housing industry is bleeding from: prices go down, too.  When they do break, the momentum downward will be fierce too, as buyers will want to recover what they saw as gouging just a few months ago.  Farmers read the same profit guidance from company execs as stock analysts, and we know from whose farms those profits were extracted.

Add in irate pre-payers, and a real cash flow problem (will you pre-pay with prices dropping?) and they have made normal market action about as painful as it can be for themselves. And simply because they thought market forces would stop applying to them.

Bad news, folks.  We producers thought the same thing up until August.