Monday, October 13, 2008

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.


Anonymous said...

Fertilizer sales aren't happening in the countryside, right now. I've seen a bit of an uptick in interest in GPS soil sampling, which I've thought has always been the best bang for the buck you can have. Some of our company's prepaid fertilizer customers have reportedly been asking for their money back...haven't had that happen to me, yet. It's a pretty uneasy marketplace out there, right now, for good reason.

Anonymous said...

-We are not putting any fall fertilizer down.....will wait till spring and if prices are still high will just dribble some starter on the seed and sidedress a reduced n rate......on GPS sampling you should have 2 different companies sample same field and then ask for representative sample from ones they take--send them again to 2 different labs for tests--you will be really surprised at results and recommendations---and the surprise won't be a happy one.....that is why we have just went to fertilizing for crop take out-use---happy harvests-kevin

Ol James said...

Mr John, Jim and Kevin. Do yall,(correct spelling by the way), ever use manure for fertilizer?? I have seen some interesting shows on TV about them injecting manure into the ground. Either in the Fall or at Spring planting. The injection method,especially when using fairly fresh material, is giving some very good results. Not to mention savings. Here's a link to one article:
There are a lot of good articles published by different Schools, Extensions and the Gubber-Mint.
I found over 1 million articles when I typed "manure fertilizer" in the search box. Just wondering??

buffalobill said...

I drove by a farm last night on my way dancing...and there were semi's full of manure beside a field where manure was being injected. This seemed to be a commercial application. Farms in this part of MI are small, but some cropping operations are large, renting the small farms. So, manure Is being used to offset fertilizer use. I am not sure how much savings occur when using a commercial application, though

Anonymous said...

Ol James --we do spread million gallons or more hog manure on our corn ground.....lot better cost saver to-day than years ago it was just to get rid of the stuff....there is a calculator that when you get your manure analysis done it will give you how far you can economically transport it--good luck to you yall -kevin

Ol James said...

Kevin, I was just curious as to why ya don't hear more about using manure?? Folks around here used to spread chicken litter but the weed problem caused many of them to quit. Technology just wasn't good enough then. There are some mighty interesting results being achieve by the injection method. Some of them are just fertilizing every other year with it, not to mention the savings on their inputs.