Farm Input Costs Should Drop With Low Oil Prices, Eventually

Low oil prices should translate into reduced input prices for farmers, but don’t expect to see major declines in fertilizer prices before the 2015 growing season, according to a lending institution consultant speaking at St. Jean Farm Days in Manitoba this week.

“I think in the long run we will see our cost of production decrease. It’s going to be difficult in the second quarter when we start to seed or the third quarter when we start to harvest — I don’t think we’re going to see that significant drop particularly for nitrogen or fertilizer prices,” says Brad Magnusson of Magnusson Consulting Group in the video below. “It’s probably going to be the fall of 2015 before we start to see some rationalization of the fertilizer and chemical costs as a result of the change in the price of oil.”

Related: Fertilizer Pipeline to Prairies Off to Strong Shipping Start

Analysts around the world are trying to determine how low oil prices will fall, with OPEC countries saying they’re going to increase production to maintain oil revenues. Magnusson says he sees chart resistance between $35 and $40 a barrel, although he expects prices to quickly rebound into the $70 to $80 range.

He argues lower crop values are also putting downward pressure on input prices.

“It’s going to have to translate into lower fertilizer costs given where the global grain outlook is headed,” he says.

Magnusson shares his thoughts on what’s happening in the oil market and what it means for the world economy, the Canadian dollar and for Canadian farmers:

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