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Across the Editor's Desk: Protecting profit

LOREN KRUSE 05/04/2011 @ 10:17am Editor-in-Chief Successful Farming

The one sure thing that comes with record commodity prices is the determination of costs to eat away your profit margin. The run-up of 2006 to 2008 was a dramatic example, with fertilizer in particular. USDA's projection for more than 12 million additional total crop acres this year creates even more demand.

“While our fertilizer-use needs are seasonal, U.S. farmers are part of a global market with increasing demand year-round,” says Joe Dillier, director of the plant food agronomy division of Growmark. “Price volatility is not going away.”

The volatility in recent years is causing more farmers to look at locking in fertilizer costs at favorable profit margins. For example, in January, Al Kluis of Kluis Commodities recommended that clients contract 2012 crop fertilizer needs while also forward-pricing equivalent bushels in the December 2012 corn futures contract.

“We believe that being able to pay your fertilizer bill with 10% to 12% of your bushels is very favorable,” says Kluis, who writes “Your Profit." “It is a spreadsheet decision. You make it and don't look back.”

He adds that more fertilizer retailers are offering forward pricing as more farmers request it, particularly in competitive areas.

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