Diesel prices are retreating from spring highs as Iran floods the crude oil market, but fertilizer costs remain stubbornly elevated at the retail level, according to Jim McCormick, COO at AgMarket.Net.
The U.S. drained strategic petroleum reserves to prevent prices from reaching $150 to $200 per barrel, successfully capping the spike in crude oil. With the Strait now open for at least 60 days, Iran has already pushed out over 30 million barrels.
"They now need some money to rebuild the infrastructure that was damaged in the war, so you could see a little bit of flood of the market coming in," McCormick explains on this week’s episode of Ag Marketing IQ in Depth. Upside risk, however, still plays into the market as countries around the globe replenish their reserves and peace negotiations continue along a rocky path.
Fertilizer prices are sticky
While wholesale fertilizer prices have declined, retail prices remain high. Because retailers bought at higher prices, McCormick says, “They're very leery to sell the product that they paid a premium for at the lower prices.”
McCormick advises farmers to lock in at least a portion of fall fuel and fertilizer needs if prices back off enough to approach profitability. "You never know with the Iranians if it's going to go sideways," he warns, adding that demand from Brazil will also compete for supplies.
Wildcard: China
On grain markets, McCormick expects corn could hit a fall low around $4 in early August before firming. "The last two years, we bottomed corn in the first couple weeks of August," he says. Key for farmers, especially those who sold bushels at higher prices earlier in the year, is to recalculate break-evens to better know when the market offers a profit opportunity.
China remains the wild card. While the Trump administration says China committed to $17 billion in ag purchases, McCormick notes those tariff reductions hinge on continued negotiations with President Xi, who is expected in the U.S. for a state dinner in late September.
"China will come in and buy," McCormick forecasts. "I just think they're biding their time to try to get the best deal possible."
To hear more from McCormick on grain price expectations, USDA’s June 30 report and energy and fertilizer prices, turn into this week’s episode of Ag Marketing IQ In Depth.