Fall 2021

Northwest Farm Credit: Rural, Real Estate, Operating Loans; Farm Loans; Country Home Loans; Lot Loans; Equipment Financing; Young and Beginning Producers; Crop Insurance; Business Management Education; Property Appraisals

Issue link: https://digital.nexsitepublishing.com/i/1435305

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Page 15 of 19

15 Northwest FCS customer education Strategies to Combat Rising Crop Input Prices Fueled by manufacturing and shipping disruptions, crop input prices are on the rise. Natural gas is the primary feedstock for nitrogen fertilizers, and prices are reaching the highest levels since 2018. Retail prices for urea fertilizer alone are up 55% year over year, and phosphate and potash fertilizers are up 60%-70% from last year. Prices aside, COVID-19-related factory shutdowns across the globe are still reverberating across the supply chain. Combine the higher input prices for fertilizer manufacturers and fewer processing days, and you're met with higher fertilizer prices for the 2022 crop year. Bulk shipping rates are skyrocketing too. The Baltic exchange dry index, representative of bulk shipping rates for things like grain and fertilizer, reached its highest level since 2009. Higher freight costs on imported fertilizer from around the world will compound crop input prices driving the cost of production higher. In high-cost structure environments like this, it's valuable to control what you can and manage the downside risk. Here's a few simple strategies to get you started. Calculate the impacts alternative decisions may have Considering alternatives and evaluating their impacts is a great way to reduce volatility. Use a tactical, decision-making framework (like the example on the next page) to calculate the changes in income and expenses that would result from implementing a change. Then, it's most impactful to plug the result into your long-term, net budget, because a loss now, may make for a fruitful future. Pre-buy some of your expenses Pre-buying is usually a tax strategy; this year, it might be less of a strategy and more of an inventory-securing necessity. Not only are supply chains in question as they recover from the pandemic, but China is also clamping down on pollution for the winter Olympics and slowing the production of phosphorus, used in phosphates and glyphosate. The best way to ensure you have the inventory your operation needs is to pre-buy it. Invest in measurement tools Measurement tools like soil sampling can pay dividends in increasing yields and decreasing fertilizer use. When you clearly understand the nutrients in your soil, you're able to use inputs more effectively. Measurements are more affordable than wasting expensive fertilizer. Get insurance In times of uncertainty, the best thing you can do is miti- gate risk, and insurance is a great risk management tool to have on hand. There are a variety of revenue-based and yield-based programs available to you by contacting your local Northwest FCS crop insurance agent. Consider changing your level of insurance If you already have insurance, consider how a change in your level of insurance may benefit your operation. If you lose crops due to unforeseen weather or a drop in market prices, you still have a input bills to pay. Protect your operation by changing your level of insurance to reflect the rising cost of inputs. This article was derived from the October Hay Market Outlook webinar with Jon Paul Driver and the Q3 Crop Inputs Market Snapshot. Learn More

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