Fertilizer makes up approximately one-third of input costs for many crops, and it is usually the largest single component to cereal and oilseed crops.
‘Over the past 4 to 6 months, crop prices for Alberta farmers have been strengthening due to strong global sales demand,’ explains Ryan Furtas, market analyst with Alberta Agriculture and Forestry. ‘Meanwhile, corresponding fertilizer prices have been slow to respond, remaining relatively well supplied and low cost.’
One way to analyze fertilizer value is to directly compare the cost of a fertilizer product with current crop prices. Furtas says that a commonly used fertilizer ratio will show the number of tonnes of wheat or canola required to purchase a tonne of urea fertilizer.
‘In this instance, a lower ratio is favourable to producers and means less crop volume is required to purchase a given amount of fertilizer.’
Figures 1.0 and 1.1 compare average monthly canola and milling wheat values with monthly retail fertilizer products such as urea over the past five years.
Figure 1.0 Number of canola tonnes required to purchase one tonne of urea
Figure 1.1 Number of milling wheat tonnes required to purchase one tonne of urea
‘The 5-year comparison shows recent urea versus canola and wheat prices are having a strong downward trend, which is the result of higher crop prices and relatively low fertilizer prices,’ he says. ‘The current canola ratio shows that selling one tonne of canola at current prices will pay for a single tonne of urea. The current ratio is 10% lower than the 5-year average. Approximately two-thirds of the decrease is attributed to a higher canola prices and one-third due to the lower urea price.’
The current wheat ratio shows that it takes approximately 2 tonnes of wheat to pay for a single tonne of urea. Furtas adds that historically speaking, 2 tonnes is a financially beneficial ratio for producers.
‘Comparing the milling wheat ratio to the 5-year average shows a decrease of just over 6%. The strengthening price of wheat and the urea price decrease are almost equally responsible for the ratio declining just over 6% when compared to 5-year average.’
Over the next few months, he says that fertilizer inputs could rise or grain prices could drop.
‘Producers not locking in either side of the ratio are sort of speculating that either fertilizer prices will go lower and grain will go higher. Based on the past 5-year trends in grain and fertilizer prices, the ratios show that is unlikely to occur. Both sides - grain and fertilizer - appear solidly priced.’
It is possible that urea prices will experience at least some small appreciation in price going into the winter months.
‘Even though planting season is months away, North American urea is currently priced below global urea prices,’ he notes. ‘Many factors have changed in the past 5 years. Expanded fertilizer production and lower energy prices have been key in recent years, but those factors can shift and fertilizer prices may soon follow.’
‘Considering the combination of strong grain prices and relatively low fertilizer prices, securing a portion of urea tonnage at this time would be considered prudent risk management on the input side of the scale for Alberta producers,’ he adds.
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