Cheaper fertilizer and fuel help to slow price increases for farmers

The Farm Input Price Index (FIPI), an indicator of the price changes of farm inputs Canadian farmers face, increased by 2.6% in the second quarter of 2023 compared with the same quarter a year ago.

It’s a welcome change for farmers, after the FIPI increased by close to one-fifth (+18.4%) from the second quarter of 2021 to the same quarter in 2022. At that time, fertilizer (+80.8%) and machinery fuel (+78.5%) both saw record year-over-year increases following Russia’s invasion of Ukraine in February 2022. Russia is a major exporter of both commodities.

In a significant reversal, prices for fertilizer declined by over one-fifth (-21.1%), while machinery fuel prices were down by nearly one-third (-32.8%) in the second quarter of 2023 compared with a year ago.

Crop production cheaper

The drop in fertilizer prices was the main contributor to a 3.8% overall year-over-year decrease in crop production prices in the second quarter of 2023. Fertilizer prices declined in part due to lower prices for source chemicals.

Natural gas, for example, is a primary input to the production of nitrogen-based fertilizers. The Raw Materials Price Index recorded a 39.3% year-over-year decline in natural gas prices as of the second quarter of 2023.

Moderating the price decline, commercial seed and plant prices increased 10.4% and pesticide prices rose 9.5%. Production insurance prices remained steady over the same period.

Machinery and motor vehicles largely unchanged

The drop in fuel prices meant that prices in the machinery and motor vehicles category (+0.2%) were largely unchanged in the second quarter of 2023, despite an increase of nearly one-fifth (+18.5%) in depreciation due to higher interest rates.

A 1.8% drop in machine repair prices also helped to counter the rise in depreciation.

Animal production prices up

A 44.3% year-over-year increase in cattle prices—the highest increase among all inputs tracked—contributed the most to a rise in animal production costs (+7.7%) in the second quarter of 2023, as the supply of cattle in North America has been tight in 2023.

A decrease in hog prices (-14.7%) helped to counter the rise in animal production costs, as did cheaper commercial feed prices (-8.4%).

Other costs increase

Prices for buildings (+4.4%) increased on a year-over-year basis in the second quarter of 2023, while general business costs rose 5.0%.

Looking ahead

FIPI data for the third quarter of 2023 will be released on January 16, 2024.