How big exactly is the impact of falling grain prices on agricultural inputs?

Brief overview: In October, as the new-season corn from Northeast China came onto the market in large quantities, corn prices continued the downward trend of August and September, declining further across a wide area. On September 18, the state temporary storage corn purchase listing price was set at 1 yuan/jin, up to 0.13 yuan/jin lower than last year's temporary storage price. The national average price is currently around one yuan, and in some areas corn prices have now fallen to more than eight mao.

A price decline naturally produces a chain reaction. Such a decline will inevitably bring about adjustments in the planting structure, with an especially big impact on large-scale growers, who go directly from making money to losing money, and it will also have a certain impact on land transfer. Here we want to focus on discussing: what impact will the fall in corn prices have on agricultural inputs?

1. Will the degree of credit sales of agricultural inputs intensify?

With planting returns reduced, farmers are even less willing to take out money, or they are short of money to begin with. This is especially true for large corn growers with hundreds of mu; in past years the net profit per mu was only just over 200 yuan, and with corn prices falling this year, making a profit is almost impossible. When there is no profit guarantee from farming, farmers will not readily buy agricultural inputs with cash, and moreover large growers themselves have poor risk resistance and rely heavily on credit sales.

Farmers would normally wait until after the corn is sold to pay for agricultural inputs, but this year, because the price is on the low side, they are stockpiling it and holding back on selling, so the time for owing payments will be extended, which to some extent will affect the turnover of funds.

So this year distributors and retailers need to start thinking carefully about what kind of reason will work best to get the credit payments back. Should they insist on cash? Or should the credit-sales price war continue?

2. Will related agricultural input prices fall?

Rationally speaking, it will basically have no effect on agricultural input prices. As for pesticides, the cost of pesticide for one mu of corn is not high to begin with, about several dozen yuan, at most no more than 100 yuan. As for fertilizer, a cut in the corn temporary storage price will not cause the price of corn fertilizer to fall, because after the value-added tax was restored, fertilizer costs rose significantly, profit margins have already been squeezed very low, and the possibility of further cuts is not great. However, if the corn planting area decreases next year, then the amount of corn fertilizer used will naturally decrease. This will have a relatively large impact on distributors and agricultural input enterprises that focus on the corn crop.

But China's agricultural input market has always been irrational, and farmers' consideration of costs may perhaps set off a new price war in the agricultural input industry. Whoever can bring down the overall cost will be able to gain a market advantage, and this will optimize the agricultural input market. It may perhaps give a certain boost to agricultural input e-commerce that reduces distribution links.

3. Will land transfer accelerate or be hindered?

Lower returns will hurt smallholder farmers' enthusiasm for farming, and will deal an even bigger blow to large-scale growers. For people who wanted to transfer land before large-scale planting had even begun, this undoubtedly gives them more cause for worry, and for large growers who want to further expand their planting scale, they will also consider it carefully, since many large growers have not yet found a very good profit model.

For smallholder farmers, the average wage of migrant workers is already around 3,000, far more profitable than farming, so if grain prices fall, smallholder farmers will want to transfer their land out as quickly as possible. This will create a contradiction: smallholder farmers want to transfer it out, while tenants have many misgivings and become cautious. Liu Chunxiong, a senior researcher at the Sales and Marketing magazine, believes the final result will be that land transfer prices fall and move toward rationalization and normalization.

4. Will agricultural input resource integrators and agricultural machinery have more opportunities?

With returns declining, farmers will give even more consideration to planting costs. Likewise, when buying agricultural inputs, they will comprehensively consider the cost of agricultural inputs. As analyzed above, agricultural input prices are very unlikely to fall, so farmers will consider agricultural input products with high cost performance.

Some experts believe that the future trend for agricultural input products is to strengthen brands first and then weaken them. Branded agricultural inputs of solid quality will first occupy the market, leaving no room for second-rate agricultural inputs to survive, and afterward people will no longer be confused when choosing agricultural inputs, and gradually agricultural input brands will also fade away.

When grain prices fall, what farmers need most is to balance things with lower costs, so that input and output move toward a balanced state. If seeds, pesticides and chemical fertilizers all cannot reduce their prices, then the only way is to combine them, agricultural input packages, to bring down the overall cost. Or to integrate agricultural inputs into comprehensive services.

Then the opportunity for agricultural machinery has come! Agricultural machinery is the most likely to integrate comprehensive services. For example, in future plant protection, those applying pesticides would directly have the pesticides ready and guarantee the effect, charging a service fee, so farmers do not have to buy agricultural inputs themselves and then hire someone to apply the pesticides, simplifying one process. Fertilizer and seeds can be handled together by the supplier of the seed-and-fertilizer combined sowing machine. Agricultural input enterprises need to start connecting with agricultural machinery and comprehensive service providers. For example, pesticide enterprises can cooperate with plant protection drone enterprises and organizations to directly help farmers apply pesticides in the future, and so on.

The above is only a trend analysis and speculation based on the fall in corn prices. If it is a short-term phenomenon, it indeed will not have much impact on the industry, but if low grain prices become a long-term situation, then preparations for adjustment must be made. Also, regardless of whether grain prices fall or not, planting is an industry with thin profits; whoever can bring down costs and do a good job in services will be able to capture the future market, and it is no longer possible to consider only doing a good job on products.