If you think that across the board crop input prices will come down by spring, I’m sorry to tell you that’s not going to happen. Yes, fertilizer could come down some, but seed and crop protection products will not.
How can I say that with confidence despite low commodity prices? First of all, when you look at the prices today for herbicides, insecticides, and fungicides, they are all WAY less than they were 10 years ago when commodity prices were half what they are today. If you’ve seen the recent round of layoffs in the big companies, that’s not happening because they’re getting rich selling you products at today’s prices. Will they go down more? Not a chance. However, keep in mind that I’m saying prices won’t go down MORE from where they are at today. Since last summer, herbicide prices are already down 5 to 10 percent. Fungicide prices are down 10 to 30 percent. This is all great news, as your crop protection costs could easily be lower than last year even if you use more products at higher rates.
When it comes to seed, we currently believe corn acres will be up; and after looking at what happened last year when the best varieties yielded really, really great, most companies don’t believe farmers are willing to sacrifice 20+ bushels to save $100 a bag. With soybeans, it’s kind of the same thing.
The big advantage you have when prepaying for seed and crop protection is those items are almost always price-protected. Just make sure you talk to your dealer about that before prepaying, though. With fertilizer, it is almost never price-protected, so that’s why I hate to speculate and give you a recommendation on whether or not prices will go up or down. With seed and crop protection, it’s almost a guaranteed 5 to 10 percent savings when prepaying vs. buying in-season; and although it’s not guaranteed, prepaying for fertilizer usually provides some savings, too.
We almost always encourage you to prepay when your downside risk is small. We suggest you work with a financially sound retailer you can trust. We also advise you to ask your retailer BEFORE you prepay about all the contingencies. For example, will you get interest on your money if you prepay too much? Can you get your money refunded if you prepay too much? How about if you need to switch products? When will the product be ready for you to pick up? What is the return policy? I know that today some of these things may not be top of mind, but you want to have your bases covered in case something goes wrong.
Finally, prepaying is great for tax reasons. In effect, it allows you to average out your income and possibly delay your tax bill. Please work with your tax accountant on this, but it is a huge advantage for farm operations, so use it when appropriate. If you don’t need to prepay for tax reasons, many retailers hold their low December prices through January 5th, so prepaying right after December 31st is often advantageous, too.
