An Update on Farm Input Prices 2005

Economics Research Group, Ridgetown College, University of Guelph

Fuel, fertilizer and pesticides typically represent 35-40% of cash operatmg expenses on a commercial cash crop farm in Ontario (source: Ontario Data Analysis Project cash crop farms). In this period oflow commodity prices and upward trending input costs, it is expected that farmers will be looking at ways of reducing production costs wherever they can.

The Ontario Farm Input Monitoring Project was developed to provide consistency in reporting prices of farm inputs and to provide a basis for discussion and comparison of price differences between Ontario and neighbouring U.S. regions. Data reported in this update was supplied by this project which is supported by Agriculture and Agri-food Canada and the Ontario Corn Producers' Association.

Table 1 reports average 2005 fertilizer prices for Ontario as well as a comparison of five year average prices (2001-2005) between Ontario and the u.s. For all but one fertilizer product listed in the table, the prices in 2005 were higher than the five year Ontario average. Prices for 2005 were the highest while prices recorded in 2002 were the lowest of the five years. Prices for 2003 and 2004 were similar for most of the products listed. A comparison of the five year average fertilizer prices for Ontario and the u.s. shows that Ontario prices are higher for six products and lower for three. Liquid fertilizer prices in Ontario were 13.4% higher than for the same product in the U.S. while Ammonium Nitrate prices were 18.7% lower than in the U.S. A total of 17 herbicide prices were collected and results for four are included in Table I. For all four products listed in the table, the average price for 2005 was higher than the five year Ontario average. For three of the products listed, the five year Ontario price is higher than the five year U.S. price. Dual II Magnum is 17% lower in Ontario than in the u.s. When assessing five year average prices for the entire group of herbicides, however, the results are mixed with Ontario having higher prices for seven out of fifteen products (note: five year average comparisons could not be done for Roundup WeatherMax and Select as 2005 is the first year these product prices were collected). Table 1 includes price data for coloured diesel as well. The average 2005 price was approximately 32% higher than the five year average Ontario price.

Table 1 also provides an estimate of what prices in Ontario might be for 2006. Using price data for the years 2000 through 2005 in a computer forecasting model produced the results shown. There is an indication that all fertilizers, except potash, are expected to increase in price in 2006. Muriate of Potash is estimated to decrease approximately 3%. Increases in the range of 1-6% over 2005 are predicted for nitrogen products. There is the likelihood that phosphate products will increase 2-4%.

Herbicide price estimates for 2006 indicate that there is likely to be an increase in prices. The four products listed in Table 1 show approximately a 2-6% increase but the price increase for the group of fifteen herbicides (note: Roundup WeatherMax and Select not estimated) will be about 1 % to 2%. Fuel prices have increased significantly the last two years but surprisingly the computer model predicted a price decrease of 4.8% for 2006 for coloured diesel. There remains much uncertainty in the oil and fuel markets which will no doubt impact future prices.

In summary, it is likely that most fertilizer and herbicide prices will increase in 2006. It is anticipated that nitrogen fertilizer will increase by 1-6%, phosphate prices have the potential to increase by 2% to 4%, while potash will decrease 3%. With respect to herbicides, the 2006 price increase is likely to be 1 % or 2%, and fuel prices are expected to remain volatile.