To Pre-Pay or Not to Pre-Pay ...

Dec 12, 2022

Deciding on whether or not to pre-pay for crop inputs before yearend
To pre-pay or not to pre-pay ... that is the question. When is it a good idea to pre-pay for crop inputs? Ron Paulson, Federated’s Isanti location manager, said, “That depends.”
It depends on tax needs. It depends on pricing. It depends on your unique farming operation and crop management style.
“In a majority of years,” Paulson observed, “it does pay to pre-buy.” A grower who sold a lot of grain in 2022 will have good motivation to pre-buy this year. Some growers follow their “tax man,” said Paulson, selling grain or purchasing inputs early based solely on tax considerations.
Others look at price as their determiner. “What goes up eventually comes down,” said Paulson, in reference to the high prices on crop inputs this past year. But how far prices may go down (if they go down at all) is unpredictable in the current market.
“Seed pricing is best right now, for sure,” said Paulson. The better prices are available to those who lock in seed now. Additionally, seed financing (see related article) is available for early pre-buy.
Crop protection pricing has not been as volatile as the fertilizer market, Paulson observed. The main reason to lock in crop protection chemicals now is supply. “Pricing isn’t quite as different [now or later] for chemicals,” he said. But product availability can change quickly based on demand.
Things are changing every day on the fertilizer side of the business, Paulson noted. “The suppliers are trying to find out when everyone is going to jump in and buy,” he said. Once growers start buying, that may be “the magic number” where the price sits for awhile – or it may jump up again.
Pre-buying can reduce anxiety over price fluctuations and product availability. It’s impossible to predict spring river water levels, railroad strikes, and other factors affecting the arrival of product in Minnesota and Wisconsin.
Discuss your pre-buy needs with your Federated Agronomist (and your tax accountant) and place orders soon.

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