By Darren Hefty

This 2015 crop is extremely interesting! You’ve got commodity prices well off their highs of the last couple years. Add to that the uncertain tax and depreciation situation, and everyone’s scratching their heads wondering what’s going to pay for their farms and what things need to change or be cut. I will give you one of the very few SURE THINGS that will make or save your farm some serious money. It’s PREPAYING for your crop protection needs.

Each year, ag chemical manufacturers work in a fairly predictable manner. As almost all of them are publicly traded companies, they have to meet their investor’s expectations on a quarterly basis. As such, they are anxious to get some sales on the books early in the season. Once their sales goals are met or are close to being met, the prices start to move up. Also, they offer cash discounts to retailers in order to secure cash for their products as early as possible. Typically the cash discounts run as high as 1 percent per month, and the in-season price increases manufacturers may make on tight supply or high demand products could be an additional 2 to 10 percent.

  • Prices go down in-season. When you talk to your dealer before you prepay, make sure they will “price protect” you if prices happen to go down. In other words, if prices drop you get the lower price.
  • Your dealer goes bankrupt. Whenever grain prices and fertilizer prices are volatile, many ag retailers who deal in those two commodities face a tremendous amount of risk. Also, when there are management changes you need to be certain that the company you prepay with is stable financially. The hedge to this concern is simply to take the product home when you prepay (provided the product isn’t one that will cause you problems if it freezes or has some other storage concern).
  • You decide to switch crops and the products you’ll need to protect them. Make sure that your dealer allows you to switch crops and products and still gives you the prepay prices on those products.
  • You can’t use the products and have now prepaid too much. So what happens to your money? The best companies out there not only will write you a check back with your prepay money, they’ll also pay you some level of interest on your money for the time they had it. Don’t discount the value of this when you’re pricing your crop inputs this year. Make sure you ask your dealer what happens if you prepay and can’t use up all the money this year.

I understand there’s a lot of uncertainty about what to do this year and what you need to cut in order to be profitable. One decision you will likely not regret is saving good money on your crop inputs by prepaying this year.