Tighter grower margins cloud crop input market

Harvest is only beginning, and yes it’s not too early to think about next year’s crop inputs. Uncertainty and risks abound in the ag markets, so input manufacturers and retailers are already planning ahead. Farm profitability is under pressure because commodity prices are below their 5-year average due to strong U.S. production, while input costs remain high. Although some input prices have dropped, they haven’t declined as much as grain and oilseed revenues. Canadian crop input sales peaked at $23.4 billion in 2022 and have stayed around $20 billion in recent years (Figure 1). We expect sales to remain flat for next year’s crop.

Tighter margins make it important to optimize the crop and input mix for next season. Early planning can help take advantage of early bird discounts and allow flexibility to adjust plans as new information becomes available. Here is our initial assessment of factors that might affect the crop input market next year. This information aims to help producers and the crop input sector make informed decisions about managing expenses and maintaining appropriate inventories.

Exceptional U.S. growing conditions drive crop prices lower

This year, U.S. farmers are experiencing excellent growing conditions, leading to record yields for corn and soybeans. This abundance is pushing commodity prices down. If Canada has an average production year, the lower prices could result in negative net returns for some farms, depending on their land costs. As grain and oilseed prices drop, farmers might feel more anxious about making decisions for next year’s inputs, with tighter expected profitability and reduced cash flow.

Input expenses softer but remain high

On the positive side, chemical prices have eased. The prices of key active ingredients have fallen as the sector recovers from post-pandemic supply chain issues. Global inventories of most chemicals, like glyphosate, have increased, leading to price drops (Figure 2). Consequently, agricultural chemical sales are expected to decline by 14% in 2024 and another 4% the following year due to these lower prices.

Global fertilizer demand subdued but prices remain elevated

Fertilizer prices have dropped a lot since their peak in 2022 and have continued to go down since the 2024 planting season started. The demand for fertilizers, especially nitrogen, has been lower globally. This is good news for farmers, but prices are still higher than they were before 2022 (Figure 3). There’s a chance prices could go up again for next year’s crops. Global issues like China’s export restrictions and paused production in Egypt are keeping prices high. However, China’s export decisions are unpredictable. On the flip side, if global crop prices keep falling, it could lead to even lower fertilizer prices.