Farmers Weigh Buying Now vs Waiting Until Spring for Inputs
As farmers prepare for next year's harvest, they face a critical decision: should they buy farm inputs now or wait until spring? A recent analysis suggests that purchasing early can lead to lower total input costs, but market conditions and commodity prices play a significant role in determining the best approach.
Understanding market trends is essential when making this decision. Historically, farms that prioritize early purchases have seen benefits, but fluctuations in commodity prices and supply chains can impact fertilizer and other input costs. Declines in commodity prices can lead to increased demand for farm inputs, potentially making it more expensive to buy later.
To make an informed decision, farmers should consider the fertilizer-to-crop price ratio, which compares the cost of fertilizers to the value of the intended crop. A higher ratio indicates a more expensive fertilizer compared to the crop's value. For example, if Diammonium Phosphate (DAP) is priced at $877 per ton and contains 46% or 920 pounds of phosphorus, dividing the price by 920 results in a price per pound of $0.95. To calculate the ratio, divide this price by the price per bushel of the intended commodity.
Figures from recent seasons show that phosphorus fertilizer prices were lower in the fall compared to spring for all crops, except wheat in 2024. Potassium fertilizers were also less expensive in the fall of 2021 and 2023 compared to each following spring. However, market conditions can change rapidly due to global events or domestic factors like weather.
Global supply chain disruptions can significantly impact fertilizer expenses. For example, the closure of the Strait of Hormuz led to a dramatic increase in the price of urea-based fertilizers during peak demand months. Spreading out farm input purchases between fall and spring can provide advantages, such as utilizing storage and ensuring products are on hand.
Ultimately, farmers should consider their cash flow, crop plan, and market conditions when deciding whether to buy now or wait until spring. Prioritizing products to buy based on available cash is essential for efficient use of working capital or loan funds.