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Fool me twice, shame on you!
Fertilizer reps/salesman continue to repeat the mantra that had merit prior to
July, 2008: "You better buy it now, because it's going to go up!".
correct advice prior to July, 2008, but since then has been very bad advice.
While markets of every other kind (commodities, stocks, houses - everything) had
dropped significantly since then, fertilizer dealers seem to have the record
stuck on the same old saying "Buy it now as the price will rise."
This advice fooled farmers once following July, 2008, but the advice was very
bad to the point of most nitrogen and phosphate prices dropping almost 67% or
2/3 from their summer highs. Not only was this wrong, but it was very, very
wrong! This expensive lesson cost many farmers a lot of money last fall as
prices tumbled lower. "Fool me once, shame on you!" That saying was perfect
for fertilizer dealers who were dead wrong on the market last fall, and advised
farmers to buy high priced fertilizer while prices of almost all other
commodities were tumbling lower.
But worse than that first lesson, some farmers might learn it all over again as
we still hear fertilizer reps saying things like "..prices will rise this spring
again, so you'd better buy it now.". Personally, I couldn't disagree more! I'd
rather buy already discounted futures/options of natural gas, crude oil,
unleaded gas, or heating oil rather than virtually any fertilizer cash market
right now. These energy markets are showing signs of trending higher, a much
better bet considering the sharp decline they've already experienced (and cash
fertilizer prices haven't completely followed.)
For anyone who listens to this advice to buy fertilizer because it's going
higher, there is an equally appropriate saying that applies here: "Fool me
twice, shame on me!" In other words, if I allow myself to believe this sales
talk again, it is no longer the fertilizer salesman that needs a talking to, it
is myself. I, and I alone, am responsible for listening again to this ridiculous
mantra. And if it costs me a fortune (again!), then I and I alone am
Personally, I would think the credibility of these sources to now be less than
stellar. Clearly, the market can go up, and it can go down - a truism that
fertilizer dealers ignored last summer. For some fertilizer prices that haven't
dropped yet from the stratosphere, the odds of going up from here are probably
slim to none! I, for one, have learned in the past 20 years that there are always
odds of a market going both higher and lower from almost any level. But clearly,
the higher they get relative to all other commodities, the less likely they can
keep rising. The tide has turned for fertilizer producers, and it seems that
everyone knows it except the producers themselves.
Some fertilizer manufacturers (Potash) seem to think that they are all powerful,
and are keeping prices artificially high by simply shutting down plant capacity.
But while they might be a monopoly (or near monopoly) and can set the price for
their product, they cannot make people buy their product at that price.
Shutting down a factory sounds forboding, but if you have a factory that doesn't
produce anything, that is certainly no way to make a profit, either. Farmers
don't leave land idle (a fixed cost), and fertilizer plants certainly can't
leave a factory idle indefinitely, either, and make money.
So we enter spring with farmers and fertilizer companies facing off in a good
old fashioned game of chicken. Who will blink first? In my opinion, I'd
rather side with the farmers on this one, as time is certainly on their side
(along with the entire world marketplace).
The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be reliable. The
opinions and recommendations contained are based on our judgement and do not
guarantee profits will be achieved or that losses will not be incurred.
Recommendations should not be construed as an offer to buy or sell
commodities. There is substantial risk of loss in trading futures and
options on futures.
Ray Grabanski is President of Progressive Ag, a marketing and risk
management firm for farmers located in Fargo, ND. For questions or
comments, or if you are interested in more information about Progressive Ag's
common sense marketing services, call 1-800-450-1404 or email
Fertilizer reps/salesman continue to repeat the mantra that had merit prior to July, 2008: "You better buy it now, because it's going to go up!".