The rising Baltic Dry Index (BDI) has stock market investors all a-twitter talking up monetary policy and the reflation trade, however, the data on farm products sales and inventories do not support the theme (Not to mention the cratering equity markets). The wholesale inventories report released by the Census Bureau showed lower than expected inventories and will likely have a negative impact on GDP. However, that is not the juicy nugget; the real story is inside the numbers. In particular, farm product sales are plummeting faster than inventories can be sold.
click to enlarge
This, of course, is no surprise to those in the farm belt. In January, I posted about dropping fertilizer prices. In that post, I implied that farmers might hold off on purchases until they determine what they will plant. It now appears that we have the data to back up the implication. Farmers are experiencing both lower crop prices and lower fertilizer prices. The only crop that has held up relatively well is soybeans. Conveniently, soybeans do not require the same amount of fertilizer as corn and wheat.
The impact of reduced demand for fertilizer can be seen in the quarterly volume of potash produced by Potash Corp (POT).
click to enlarge
Source: Gridstone Research
Potash Corp. is producing at levels last seen in 2003 when corn and wheat prices were higher than current prices. Another fun fact is the only crop with higher prices today than in 2003, is soybeans. Farmers will soon be making planting decisions and the best business decision is to plant the crop that pays the most with the least cost. It is likely these business decisions will lead to continued weakness in the farm product sector.
Disclosure: I am short MOO.