High input costs enrage farmers

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Anyone who is putting together crop budgets for 2008 right now has probably got a bad case of heartburn.

Purdue University's Mike Boehlje calls what is happening "margin compression.•bCrLf That is, you had a nice profit margin last year when grain prices zoomed up and input costs stayed mostly the same. Now input costs are catching up. University of Illinois' Gary Schnitkey has a pretty good handle on higher inputs, here.

In some cases, the increased costs are justified. In other cases, they are questionable.

No one will admit to price gouging, of course. But if you read between the lines in any story about input cost increases, what comes out is this: We raised our prices because we know you can afford it.

Fertilizer is a good example. There is no logical reason for the price increases we are seeing, other than strong international demand. In a story we ran earlier at www.farmfutures.com, we noted that prices for anhydrous soared past $600 a ton at Midwest locations, with some quotes as high as $650 according to farmers. Potash prices are also scheduled to jump $30 a ton December 1, with more increases promised for January and February.

While quotes of anhydrous for spring delivery soar at the retail level, wholesale prices are far cheaper. Reuters quoted prices at the Gulf at $289 a ton two weeks ago, with FMB-Group reporting prices at $292 to $297. Prices out of the Black Sea, a major exporting hub, have actually been falling since September.

It's not the traditional connection with natural gas prices, either. At the current price of $8 per btu, the gas in a ton of anhydrous would cost $272. However, natural gas prices paid by fertilizer companies are typically less, thanks to long-term production contracts from plants in the Caribbean. Those agreements lock in natural gas at $3 or less.

Sure, there are higher transportation costs today compared to last year. But that could not possibly make that much difference.

Joe Dillier (left), Plant Food Market Manager for Growmark, a leading fertilizer distributor and cooperative, says anhydrous is expensive because the competing forms, UAN and urea, are expensive.

"The reason anhydrous is as high as it is in the Midwest is because urea and UAN are high, and they are being driven by high demand in the U.S. but also in India, Latin America, even Europe as those farmers have moved away from set-aside acreage,•bCrLf he explains.

Even so, with steady prices at the Gulf, there seems to be no connection between wholesale price and retailers' list prices.

Fertilizer companies are reporting record profits. Someone is pocketing a windfall. And no one will own up to it.

Blame it on $4 corn and $8 wheat. We raised our prices because we know you can afford it.

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