No Deep Discounts -- Yet

By Marcia Zarley Taylor
DTN Executive Editor

HADDONFIELD, N.J. (DTN) -- Landlords won round one in cash rent negotiations for 2016 with minimal concessions. Unfortunately for growers struggling to lower break evens, savings on inputs like seed, fertilizer and crop protection chemicals also faltered, if real-time data from Granular and other data management companies is any indication.

Granular benchmarked actual expenses for its customer base on more than 1 million crop acres this spring, comparing costs for specific products and seed hybrids to 2015 spending. By that measure, chemical costs fell a modest 9%, fertilizer only 8% and seed a mere 1% for Granular customers. Individual items like Roundup PowerMAX tumbled 12% compared to 2015, somewhat steeper than the industry average, Granular Co-Founder Mike Preiner told DTN.

Those savings are in line with recent University of Illinois corn and soybean budgets for 2016, Preiner noted. "We thought seed prices would have dropped even more, but products kept up their margin," he said.

DTN's own weekly survey of more than 1,700 retail fertilizer prices found steeper reductions in fertilizer bids than what Granular reported, but that could reflect growers who prepaid for product before prices began spiraling lower. Near their bottom in mid-March, DTN reported national average prices for DAP and UAN32 16% lower than a year earlier, MAP 17% less expensive and urea down 20%. In addition, UAN28 was 21% less expensive, anhydrous 23% lower and potash 24% less expensive compared to a year earlier. It's possible more growers will benefit from the slide in fertilizer prices by 2017.

MORE PRICE TRANSPARENCY

By compiling the equivalent of a Kelley Blue Book price list for ag inputs, buyers will command more negotiating power with their suppliers, Preiner observed. "This gives growers insight into the opaque."

"There's definitely more opportunity to reduce production costs," he added. "But it's just indicative of how long it takes input prices to adjust. Pricing is driven by demand. It's not the cost of production setting seed prices."

The Granular study did not measure changes in farmer shopping habits that would have reduced overall cost per acre even more. For example, a February 2016 study by Millennium Research commissioned by J.L. Farmakis indicated 44% of growers planned to switch to generics and 30% planned to change brands of crop protection production products this year. Those moves could potentially help farmers realign their costs after the steep plunge in commodity markets since 2013.

Charles Baron, a co-founder of Farmer Business Network (FBN), agrees there's not a lot of price transparency in farm inputs. Price bundling, rebates and bonuses such as ATVs or trips to the Super Bowl obscure what growers actually pay for products, he said. "A number of farmers have told us they hate shopping and have no idea if they're getting a good deal or not."

FBN's analysis found a 44% price spread for the same glyphosate product for two growers within a single retail outlet. Even with bulk discounts, that might be hard to explain.

"How does that possibly happen with a commodity?" he said. Unlike Granular, FBN doesn't have comparable data on what its members spent on items in 2015 since that was the company's start-up year. However, farmers representing more than 7 million acres have now enrolled in the $500-per-year service, so it will be able to mine those results in the future.

PURCHASING AGENT VS. PRICE LIST

In January, FBN launched a group-buying procurement service for 180 chemical products. In this case, it guarantees member prices on mostly generic chemical products delivered to the farm. Exchanges are limited, and the company allows no returns. FBN enrolled hundreds of buyers in the first eight weeks of the program, Baron said. Savings of 10% to 20% off chemical bills have been common, although discounts on some products can hit 60% to 70%, he said.

For example, FBN found Roundup PowerMAX typically sold for $29 to $32 per gallon, but it offers the generic equivalent for $14 per gallon.

(Still, price comparisons between generics and brand names can be tricky because some generics have surfactants and some don't. Another issue is in the concentration of active ingredient and how much of the product you need to use.)

Growers uncomfortable with self-service or who want to retain a relationship with local vendors can compare their FBN price list to their local supplier's price. "It puts them in a more powerful position to manage their costs," he said.

Obviously, the service is not popular with local retailers, Baron admitted. "Our whole mission exists to save our farms money. If we can provide information tools to help our farms be more profitable, or to give them better access, we will ... it does highlight the cost of business as usual."

Marcia Taylor can be reached at marcia.taylor@dtn.com

Follow Marcia Taylor on Twitter @MarciaZTaylor

(AG/SK)

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