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Crop Production

Trends in Ontario Farm Input Prices

By Ken McEwan, Ridgetown College, University of Guelph

Introduction
Fuel, fertilizer and pesticides typically represent 35 to 40 per cent of cash operating expenses on a commercial cash crop farm in Ontario (Ontario Data Analysis Project - cash crop farms). As agricultural markets become more global, competitiveness in input pricing has received more attention. In this period of low 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 purpose of this article is to look at this question of changes in farm input prices over time and to provide some explanation as to how input prices are set. To accomplish this task, data from the Ontario Farm Input Price Monitoring Project (OFIPMP) has been used. OFIPMP is a survey of farm supply stores that tries to collect the cash and carry retail prices paid by commercial farmers, when purchasing bulk fuels, fertilizers and pesticides. Prices are collected on 45 farm inputs from 11 centres in Ontario, 4 in Michigan, 2 in Ohio and 1 in Indiana. Using a pre-designed survey form, enumerators obtain current pricing from a minimum of 3 retail outlets in their assigned centres. The table below displays historical prices for selected farm products monitored.

Discussion
From the table below, it can be seen that most farm inputs do change in price from year to year, sometimes rather dramatically. For instance, between 1997 and 1998, urea prices fell by some $77 per tonne, or 20%. Perhaps the most interesting observation from the table is that there do not appear to be any obvious trends with respect to most fertilizer, chemical and fuel prices. Sometimes yearly prices are up, while at other times they are lower. The input bundle appearing to display the most price stability is chemicals. Further, although this table does not provide a robust comparison between commodity prices and input costs, the evidence presented would suggest most input prices do not move in harmony with commodity prices. The most obvious example of this is diesel fuel. In May 1996, diesel fuel was $0.40/litre and corn was $4.17/bushel, but in May 2000 diesel fuel was $0.47/litre and corn was only $3.27/bushel.

There can be many reasons why input prices vary from year to year, including: differences in cost of production (e.g., increases in natural gas, which represents about 40% of the total cost to produce anhydrous ammonia); differences in market size caused by farmers switching to alternative crops; differences in farm input demand (e.g., farmer preferences, willingness to pay); differences in economic climate (e.g., changes in government policy which affect Canadian-U.S. exchange rates); differences in supply (e.g., high cost plants shut down, therefore less supply) and differences in the number of substitute products available. With respect to pesticides, several products which are widely used in other crops and locations, tend to have many pesticide alternatives and non-chemical pest controls.

The question most farmers are currently asking themselves is “What is the direction and magnitude of price changes anticipated between now and this spring?”. Clearly, the anecdotal evidence collected from retailers suggests strong movement upward in nitrogen fertilizers (over 50% for anhydrous ammonia) while phosphorous and potash are expected to remain stable. Pesticide prices are expected to rise moderately at approximately the rate of inflation, i.e., between 2 and 3%. The primary reason for nitrogen fertilizers rising so much in price appears to be the tremendous rise in natural gas prices, coupled with some industry consolidation at the manufacturer level. Most manufacturers have chosen to sell off their futures contracts for natural gas and take their paper profits. If indeed anhydrous ammonia prices rise by 50%, spring prices will be about $675/tonne ($450/t + 50% increase). This price increase would translate into a cost of production increase of $.14/bushel on a 120 bushel/acre corn crop receiving 150kg/ha.

Obviously, this increase in nitrogen fertilizer costs will drive up crop production costs and make it difficult for many farmers to stay profitable. Given these tough economic times, what should farmers do? This is not an easy question to answer, because different strategies will be appropriate for different farmers. Possible ways to tackle the problem include: line-by-line analysis of every production input to find potential ways to shave costs (e.g., change from simply paying cash rent to using a variable share based on cost of production); making a deal with a neighbouring livestock farmer to use manure for some of the crop’s nitrogen requirements; and searching out possible ways to increase crop value, such as through specialty market contracts.

In many years, a few dollars of extra cost can make the difference between a profitable and an unprofitable year. Rising input costs will undoubtedly raise the break-even bar for many crop farmers.

Fertilizer, Chemical, Fuel and Corn Price Comparison, 1996-2000

Fertilizer

Unit

1996
08-May

1997
07-May

1998
06-May

1999
05-May

2000
03-May

Average 1996-2000

2000
06-Dec

Anhydrous Ammonia 82-0-0 (no service)

$/tonne

533

495

440

418

403

458

450

Urea 46%

$/tonne

413

394

317

301

296

344

329

Nitrogen Solution (UAN) 28%

$/tonne

253

243

208

201

202

221

217

Ammonium Nitrate 34%

$/tonne

336

323

325

304

293

316

301

Mono-Ammonium Phosphate 11-52-0

$/tonne

437

434

437

460

401

434

395

Di-Ammonium Phosphate 18-46-0

$/tonne

429

426

420

453

393

424

395

Triple Superphosphate 0-46-0

$/tonne

386

391

413

437

370

399

371

Muriate of Potash 60%

$/tonne

218

220

236

251

257

236

258

Chemical
Atrazine 480 (480 g/l SU)

$/litre

4.91

5.05

5.29

5.59

5.70

5.31

5.78

Roundup (356 g/l SN)

$/litre

8.78

8.73

8.75

8.67

8.56

8.70

8.53

Sencor 75 DF (75% WG)

$/kilogram

70.37

69.76

68.84

56.57

55.12

64.13

55.18

Fuel
Regular Unleaded Gasoline

$/litre

0.57

0.55

0.50

0.54

0.63

0.56

0.71

Diesel Fuel (coloured)

$/litre

0.40

0.40

0.36

0.35

0.47

0.40

0.62

Propane (farm dryer)

$/litre

0.26

0.29

0.29

0.26

0.33

0.29

0.37

Corn  
Chatham Board, New Crop - May 1

$/bushel

4.17

3.47

3.52

3.02

3.27

3.49

na

Chatham Board, New Crop - May 1

$/tonne

164.16

136.61

138.58

118.89

128.73

137.39

na

Source:
Fertilizer, Chemical and Fuel - Ontario Farm Input Price Monitoring Project, Ridgetown College, University of Guelph
Corn - Brian Doidge, Ridgetown College, University of Guelph
na - not available


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