FBN finds as much as 283% price variation between farmers buying same ag chem

On a self-proclaimed mission to democratize information, Farmers Business Network (FBN) released their fifth Ag Chemical Price Transparency Report since 2015 on Thursday. The report collected more than 3,000 data points from approximately 300 farms across 37 states. The company found as much as 283% price variation between farmers buying the same products.

Survey history

Report author and FBN Chief Economist Kevin McNew explains, after 18 months of extreme price volatility in the agricultural chemical supply chain, the company believes it's time to revisit the notion of price transparency.

"FBN launched in 2014 out of the need for more transparency and competition in input markets which the internet helps address, but as we see it's still a major problem for farmers," McNew says.

Today, many U.S. consumers are used to the transparent market provided by Amazon, Wal-Mart, Target, and other major retailers where prices are accessed online within seconds, and comparison shopping is easy. "In farming, that's still not the case," says McNew. "The result of that is huge variability in prices."

He adds, "Providing more transparency on the market enables producers to make informed buying decisions to drive ROI from every input dollar."

Survey process

This year's study began in January when FBN put out a call to its members for invoices. "Farmers submit invoices that they're actually getting from the retailers they buy chemical products from, so that way we know it's actually a price they're transacting at," explains McNew.

Once data was collected, anonymized, and aggregated, McNew and analyst Greg Evans set to work examining the transactions dated October 2021 to February 2023.

"We take a lot of care with the data we have. We have a lot of safeguards around it. We also have a lot of trust with our farmers," McNew says.

He explains, "We did normalize all the prices by what we called the normal product trend, because prices were varying quite a bit over this time period. When we benchmark farmers, we benchmark them against this broader market trend of first prices were climbing, and then they were falling."

Market background

The team acknowledges a series of global events had significant impact on the agricultural chemical industry between Fall 2021 and present.

When Hurricane Ida struck Louisiana in late August 2021, key chemical plants were shuttered for an extended period.

Later in 2021, China's dual control energy policy was announced, idling some industrial manufacturing into early 2022.

After that, electricity constraints in China limited capacity for yellow phosphorus, a key raw material for glyphosate.

At the end of 2021, China's pesticide output was down 3%.

The new year started with port congestion on the U.S. West Coast, creating a supply chain bottleneck for containerized logistics.

In mid-February Bayer declared force majeure on glyphosate deliveries for the 2022 growing season.

"These cascading events highlighted not only the extent to which market conditions in ag chem can change quite quickly, but also the degree to which U.S. farmers rely on the well-functioning global manufacturing of key active ingredients – largely from China – and an efficient transportation network to bring the finished products to their farms," the report notes.

The question the economists aimed to answer: Once the broader trend is removed, is there still a lot of variability?

Survey findings

"Once again, the data shows farmers are paying very different prices for identical products, because by and large, crop protection sellers are not providing transparent pricing and many regions lack competition," says FBN Co-Founder, Charles Baron.

What product price varied the most?

The product with the widest price range was dicamba diglycolamine salt, with 283% price variation.

"For dicamba, we saw three times the variability from lowest price to highest," McNew says. "In other words, the highest paying farmer paid three times more than the lowest paying farmer. That's even adjusting for these broader market moves."

What was the average product's price variance?

FBN found across 236 different agricultural chemical products, on average there was a 15% variance between the average list price of a product and the price farmers actually paid for it.

Their report shows the average list price for Roundup PowerMAX 3 in June 2022 was $60/gallon, but farmers paid between $45-$73/gallon during that time frame.

"Such extreme farmer-to-farmer variability suggests that chemical markets continue to be opaque and present a challenge for all farmers to get uniform costs for ag chemicals," the report says.

How does price variation impact farmers?

Farmers paying higher prices for their ag chemicals disproportionately suffer from price variation. Farmers who paid more than the average list price, paid an average of 19% above list price. However, the other half of farmers, who paid less than the average list price, only got about a 14% discount, on average.

Does a farm's location make a difference?

"Regional pricing differences often showed certain areas were prone to paying more for certain products. For example, farmers in Ohio paid 15% more for Clethodim 2 than national price trends but Nebraska farmers paid 15% less than national trends," says the report.

McNew elaborates, saying costs of transportation can only be blamed for a small portion of the regional price differences the analysis revealed. "A thousand bushels of corn in a truck, that's very expensive to move because the value of that corn relative to the cost of shipping is pretty low. But chemicals, in dollar terms are actually very low cost to ship because they're so high value. Those discrepancies of transportation and logistics show up some, but they would not in any way account for the massive variability we see," he says.

Economist commentary

Through the FBN Direct division of their business, the company offers about 70 agricultural chemical products for sale. Combined with the surveys and his analysis, this gives McNew a unique perspective into the company's farmer customers and their plans for the 2023 growing season.

"We know, this season in particular, a lot of farmers have postponed or waited a little longer than normal to make purchases because prices have been declining," McNew says. "We're getting close enough to spring and needing those pre-emergents that I don't think prices are going to slide much more."

McNew also acknowledges higher interest rates make some farmers hesitant to borrow against an operating loan for chemical purchases.

With the next growing season just around the corner, the economist urges farmers to accept the world today has a lot of disruptions. He says, "It's like the non-ending black swan events keep coming. The takeaway is a lot of the inputs we've come to rely on like fertilizer, ag chem, and energy are going to remain high priced for the foreseeable future. For years to come, in some sense. It is really important for farmers to think strategically about investing in new technologies that improve or reduce those inputs."