Are Pre-Pay Fertilizer Contracts Pushing Farmers Toward Poor Agronomic Practices?

Prairie Gleanings

Pre-pay anhydrous ammonia contracts offload too much risk onto the farmer. Water quality may be suffering as a result.

Published on: August 15, 2011
Last week, I conducted one of the most enlightening interviews of my career. I spoke with a fertilizer analyst. He was extremely candid about the current state of crop inputs.

In short, yes, they are following crop prices, not gas prices. Our conversation eventually got on the topic of pre-paying for fertilizer. Rather than “securing supply”, he sees the practice as little more than a clever sales tactic and a way for retailers to offload risk on the farmer.

I’m sure a lot of you agree. Still, locking in a good price and getting some fall application out of the way are big concerns. In the midst of all of this, it seems agronomics may be last on the list of concerns.

After our enlightening conversation, I called a farmer and asked for his thoughts on pre-pay. He’s fine with locking in a price and supply. What he doesn’t like is what happens if harvest runs late and he can’t get anhydrous ammonia applied before winter.

According to him, most pre-pay contracts run until Dec. 31. If the price of anhydrous falls in the spring, he still must honor the higher price he locked in the previous autumn. However, if the price of anhydrous moves upward in the spring, the contract is null and void. Once again, more evidence of the retailer assuming no downside price risk. This farmer claims most all retailer pre-pay contracts are written that way.

So, what’s this mean? In his opinion, it pushes farmers to toss good agronomic principles out the window and get the stuff on regardless of soil conditions. In the process, water quality suffers. If the farmer has to wait to apply in the spring, it pretty well guarantees he’s going to get screwed. It’s just a matter of by how much.

As our state moves toward establishing good agronomic principles to safeguard our water supply, we need to encourage everyone along the fertilizer supply chain to do their part. Sure, the final decision as to when that product is put in the soil rests solely on the farmer’s shoulders. However, the farmer shouldn’t feel forced into the situation because the retailer is looking to offload risk from the manufacturer.

Registered users may comment on this blog.