As we head closer into the Western Canadian spring we have always seen a premium in fertilizer prices. Typically, local supply demand fundamentals become the key driver of price and international markets fall more to the side. The historical premium in the market that is created is based on the fact that local fertilizer manufacturers know that imports into the local area are limited or not possible. The basic math that is typically used to dictate the price in Western Canada is US Gulf price X Exchange X unit conversion + Freight.
This year has been unlike any other when it comes to fertilizer price mathematics. April US Gulf Urea recently traded at over $700us/st, which equates approximately to $872.25cdn/mt del to Western Canada. Meanwhile local retail prices are below $700cdn/mt and wholesale prices are sitting above $750cdn/mt. That is no typo, wholesale is more than retail.
What is driving the price of Urea in the US Gulf, close to the levels seen back in 2008?
An increased Corn acreage forecast for the US planting season and very healthily profit margins on Corn; demand for the Urea will be extremely high. Throughout the fall and winter many US farmers didn’t purchase Urea resulting in the retail and wholesale also not purchasing; not wanting to take the risk of another market crash. This has resulted in what I believe to be the hottest Bull Run in Urea prices (steeper graph than 2008) ever; with a $320us/st price increase in around 45 days and $100 of that increasing coming in 3 days.
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The wait and see game sometimes pays for the farmer in regards to fertilizer prices and sometimes it makes one realize that the focus should be on farm margins rather than chasing fertilizer and crop prices in the market.
So what should the Western Canadian Farmer do?
Do not lose focus on the present opportunity at hand- HUGE margins on Canola. The market has spent 50% of the time in the last 4 years below $470/mt of Canola and 50% of the time below $7.50/bu of wheat (source: Know-Risk Farm Management).
Graph provided by: Know-Risk Farm Management
Remi Schmaltz is the General Manager at Decisive Farming, where is the key driver behind new web technologies and the sales growth of Optimize Rx and Know-Risk Farm Management. Previously, Remi Work at DynAgra and was responsible for procurement of all crop inputs, logistics and strategic business expansion.
Decisive Farming is dedicated to providing growers in Western Canada with the tools and knowledge required to increase the profitability of their farm business. Using a combination of industry expertise and cutting-edge technologies, we’re helping our clients make better decisions about precision agronomics, variable rate technology, soil fertility, crop marketing, risk management, data management and carbon credits.