Michigan State University Extension
Ag Econ Bulletins - 97200005
08/28/97
Chris Peterson
Fertilizer
Unlike 1995 and 1996 when the big news was tight
nitrogen supplies and rapidly accelerating prices, the
1997 fertilizer outlook is good news for producers.
Nitrogen supply difficulties appear to be behind us with
supply and demand roughly in balance. As a result,
nitrogen prices have been stable for a number of months
with recent prices actually moving downward. One would
expect prices to firm as we move closer to the planting
season, but the overall outlook should be for stable to
lower prices versus the last 2 years. Phosphate and
potash supplies are also good with expectations for
stable prices.
On the demand side, the absence of government set
asides under "freedom to farm" means that nationally a
substantial increase in acres planted occurred last year
with any substantial additional increase in acres planted
unlikely for this year. Demand will thus be historical
high, but the pressure of rapidly increasing demand will
not be present as it was last year.
Chemicals
Chemical demand will also be little changed from
last year, although the introduction of bio-engineered
crops makes this a more difficult prediction than in the
past. In its first year, Bt corn has shown mixed yield
results around the state, but its broader adoption will
decrease chemical demand in the longer run. On the other
hand, Round-up Ready soybeans will increase chemical use
for that product.
Chemical supplies are more than adequate with likely
downward pressure on prices. There have been a number of
new product registrations recently with older products
still readily available. As these new products attempt to
buy initial market share, chemical prices should be held
in check.
Longer-term forces are still at work in the chemical
sector. Continued downward pressure on demand will come
from environmental regulations as more lower-use
cultivation practices continue to increase. Many
manufacturers continue expensive biotechnology research.
Chemical firms are increasingly moving into seed markets
as they perceive their traditional markets declining.
Seeds
Generally, traditional corn and soybean seed
supplies should be good, with prices slightly up. Last
year, seed prices nationally did increase rather
dramatically by an average 6.4%. Some of this increase
was clearly fueled by the 10% increase in seed use
because of acreage expansion. This increased demand
pressure will not be a key factor this year. Bio-tech
seed will remain in tight supply with some uncertainty
about demand and price. For producers who had a
successful year with these seeds, repurchase is strong
with supplies largely committed. The full impact of Bt
corn and Round-up Ready soybeans will take several years
to determine, and their adoption will be among the most
closely watched trends in the seed industry. Dry edible
bean seed supplies should be adequate this year with
perhaps some specific variety shortages depending upon
planting decisions that appear more uncertain this year
than in the past.
The Convergence of Fertilizer, Chemical and Seed Markets
With increasing environmental concerns about
fertilizers and chemicals, and the convergence of the
chemical and seed industries through biotechnology, it
will become increasingly difficult to view the outlook
for fertilizers, chemicals and seed as distinct issues.
Demand for all three inputs has certainly been highly
correlated in the past, but purchasers have traditionally
made independent decisions about their suppliers for each
input. Agribusiness dealers and retailers are
increasingly offering and seeing demand for unified
programs that combine fertilizer, chemical and seed
purchases into a package. These packages include not just
the inputs themselves, but customer application, full-
line agronomy advice and, at times, services related to
precision (site-specific) agriculture. Producers need to
increasingly weigh the advantages of independent input
decisions versus the potential advantages of working with
a specific dealer who can provide a full range of
services tailored to producer need.
Energy
Nationally and locally, fuel supplies should be good
this year. Prices have unfortunately been volatile,
moving upward in balance. For 1997, the Department of
Energy forecasts an average crude oil price below the
1996 level which should bode well for retail prices.
However, domestic production of crude will be down
sharply (5.5%) from last year. The result will be a rise
in imported crude to a 50% share of the market. This
contrasts with a average 44% import share through the
early years of this decade. This increased dependence on
foreign oil will probably add to the volatility of supply
and price.
Equipment
Continuing strength in farm incomes and expectations
for strong commodity prices made 1996 a strong year for
agricultural equipment sales nationally. In Michigan, the
mixed crop year resulted in relatively weak demand with
many dealers not doing as well with sales as in 1995.
Expectations for 1997 equipment sales are not that much
more positive in Michigan. Equipment supplies should be
adequate while prices are likely to be up with the cost
of inflation.