Fertilizer pricing

[cowman]

TOM: Of course I agree that a fair cost is charged. The 12% figure was the difference between what he paid and what he got. Had nothing to do with his net. I suspect his net was about what he could have got in interest with a good GIC or other investment.
Retail typically has a markup of at least 40% so why would anyone think 12% was high?
Perhaps the lack of profit is what is driving a lot of Ag businesses out of business? Consider the machinery dealerships? How many have closed their doors in the last twenty years?
Now I assume someone must be making money on fertilizer or else no one would be making it. And competition is a good thing but there still has to be a profit in it or else you end up with one company(probably whoever has the deepest pockets). Then they will have a virtual monopoly.
I do realize we need reasonable fertilizer prices with the low prices for grain we have to work with. We also need honest reliable dealers who can make enough to stay in business?

[TOM4CWB]

Cowman;

If suppliers have a high debt load, high overhead costs, and low volume... they will not survive.

But this is exactly the point about our farms as well...

We all would like 12%... the fact is that there is not this much margin available in the business, either farming or as a supplier... and I am talking gross margin... the net margin on most supplyers products is about 2%, or they don't get the business, even with average overhead costs!

VOLUME pays for fixed costs... in either business!

[cowman]

I guess you are right Tom. Which is why we have few new dealers and few new farmers! I mean why would anyone want to invest in a business that nets 2%? With that rate of return I can understand why we have fewer suppliers all the time...and fewer farmers?

[cowman]

Oh and TOM how were your crops this year and how did the straw business turn out?

[AdamSmith]

The price of fertilizer is priced to what the Illinois Corn farmer can afford. Just like Combines and Tractors the majority of North American customers for fertilizer are American based. With trend line corn yields at around 143bu. and top growers yielding over 200bu. along with an LDP top up, these growers can easily justify much higher fertilizer costs than prairie wheat and canola growers.

Also, I haven't seen any sales stats but I suspect that fertilizer usage has been trending higher here on the prairies even as prices have sky rocketed higher.

A combine in 1986 was worth $80,000 (?)
today they are approaching $500,000.

I payed $16000 cash for a 4x4 pickup in 1986. Today they are worth $50000 .

The reason these prices still work for JD, CIH, NH, Ford, Chevy and Dodge is because the earning power and wealth creation capacity of the majority of North American farmers has been able to keep pace. Trend line corn yields, bean yields and US wheat yields have all been going up. Canola yield have also been rising steadily over the last fifteen years. CWRS wheat is the exception.

Demand for corn and beans have also kept pace with supply increases. CWRS wheat demand has fallen in this same time period. The CWB has predicted that demand for Canadian wheat will remain stagnent over the next five to ten years causing our market share to plumett because overall world demand for grains will increase.

So, either our product (CWRS wheat) has little growth potential or our self proclaimed Wayne Gretzky's of grain marketing are really the Marty McSorley's. Either way we better change the way were doing things or fertilizer prices are going to be a greater and greater burden for prairie grain growers.

[Everest]

Adam Smith:

As I contemplate your economic dissertation above, I am left to wonder if perhaps you are the REAL Adam Smith. Except I thought he passed onto his reward in the late 1700’s. And little would have he known about commercial fertilizer, Fords or Chevy’s, and certainly nothing about the Canadian Wheat Board. So I guess I have to conclude that you are not him. Amazing though, how his 18th century theories apply so well to today’s realities.

[TOM4CWB]

Cowman;

Our crop yeilds were close to average, but the straw business is about 50% of normal...

On our farm We are very blessed to have healthy families, warm homes, and are looking towards spring seeding with anticipation of another productive enjoyable year in 2004!

Every year our vision is renewed of a great dream;

We are blessed with free speach... at a cost for our forefathers... that we must defend;

We are blessed with a not perfect, but very honest caring government here in Alberta that respects our personal liberties as farmers...

We are blessed by the great Creator of this earth... with bountyful resourses here in Alberta... that gives my farm and family opportunities few others on the face of this planet could even dream of!

What a wonderful time in history to be alive!

[dnach]

wana share the wealth, happines, and enthuziasim, Tom? I could sure use some help paying my fertilizer bills after 3 years of drought. I am glad that some farmers are doin ok, just gettin to the end of our rope around here, then to see fert prices shootin higher again, makes it hard to be optimistic at all.

[ALLFARMER]

I used to sell NH MF CNH parts and markup was 40% to the dealer level. I know of four farmers trying to pay off the inputs from last yr. If we didn't have crop insurance we would be another. Farming seems very unstable build slowly & cautiously.

[TOM4CWB]

dnach;

We all have a dream, the challenge is to keep these God given dreams alive...

I meant to say these things with a thankful heart… not in arrogance… and I know to those who much is given… much is expected, for the need in our communities is great!

The Fear of GOD is the beginning of all Wisdom… Pride and an arrogant heart is the worst sin…

dnach, if drought for 3 years, then not much fert. is needed for next crop obviously, as a good reserve of fertility is waiting to make your next crop a great one!

ALLFARMER I am thankful for Crop Insurance too... risk management is the key to level out the lows... sometimes it takes the highs off too... but if a person can pay the bills... this is what we are looking for!

I see Machinery Dealers have taken a big hit with the increasing value of the C$ vs. US$... a real 20% decrease in the value of used equipment inventories… even parts inventories!

Our Challenge is to use fertility reserves more efficiently… save money by using the non-organic Phosphate in our soil… build nitrogen through rotations with N fixing crops… spreading livestock manure/composts… and/or grow IP crops like specialty Canola that has a good profit in the price locked in!

[dnach]

Tom, thanks for the reply. Last year our fert. reserves were fairly high so we were able to cut back substantialy, most feilds only got 100lbs 37-14 with the seed. But for some reason this year our fert levels are way down, i guess we only can get away with it for one year.

[cowman]

TOM: I guess new parts therefore should be 20% cheaper? Even with the dealers 40% markup? I doubt it will happen?
Here is the problem of a monopoly. You want John Deere parts you pay their price...40% over cost. I don't see a lot of competition between John Deere dealers? Mostly company stores now...and that goes for CIH too.
When the day comes that one fertilizer company controls the market you will pay that 40% markup or you won't buy fertilizer. It is as simple as that.