In a survey conducted by SFP at the Farm Progress Show and Husker Harvest Days, when asked “Looking forward to the 2011 growing season, what are you most concerned about?” forty-one percent answered “fluctuating and/or increasing fertilizer prices. Some 43% planned to pre-purchase next year’s fertilizer needs this year to avoid price increases.
Planning your fertilizer purchases well in advance is a sound strategy. Unfortunately, it doesn’t always work. Some companies won’t take pre-pay orders as they used to.
Meanwhile, anhydrous prices soared by 40% to 50% this fall. “Everybody in the fertilizer business got hurt in 2008, some to the tune of millions [of dollars]. Now wholesalers and retailers alike don’t want to take a chance of a repeat,” says Beardstown, Ill., farmer Chet Esther, who serves on the board of a Growmark System co-op. “Coming out of last spring, they wanted their supplies cleared out. During the summer, it didn’t look like price would go much of anywhere, so suppliers didn’t restock. Then the early harvest led to strong demand and spot shortages.”
Esther had pre-paid some of his farm’s needs before that option evaporated. “In our area, anhydrous is over $600 now and probably headed to $800 by spring, but we can’t get a quote,” he says.
Outside of pricing, he says, “We grid sampled fields and we are using variable rate application to apply fertilizer where it will have the most benefit,” he says. “Maybe we’ll also consider some alternative nitrogen sources such as ammonium sulfate. And we may make two or three passes rather than one for more timely application to get better utilization by the crop.”
Corn–Fertilizer Price Linkage. The strong crop prices, particularly corn, and increasing world consumption are leading to increased application rates and demand for for all nutrients, says Kathleen Mathers, vice president, public affairs for The Fertilizer Institute. “Estimates indicate a 6- to 8-million-acre increase in the number of acres planted to corn, soybeans, wheat and cotton in 2011. These crops typically account for 70% of total U.S. nutrient use.”
In a nutshell, corn and fertilizer prices move in the same direction (see chart above). “An increase in anhydrous ammonia from $500/ton to $775/ton witnessed in central Iowa since summer is an extra $31/acre in cost if you’re putting on 180 lb. of nitrogen,” notes Steven Johnson, Extension agricultural farm management specialist at Iowa State University. “The price for 2011 corn has gone up more than $1.50/bu. If your average yield is 180 bu., that’s an increase of $270 in growss revenue, which means you can certainly pay out the extra fertilizer expense. By spring, if 2011 December futures are more than $5/bu., I would not expect NH3 prices to decline and may be rise from recent prices.”
Johnson urges producers to lock in profits by pricing some corn at the same time they pay for seed and fertilizer. “Crop prices and yields are higher than five years ago, but the net profit margin per acre may not have changed significantly. And with so many more dollars flowing through your office in both directions, risk takes on new meaning. It is wise to manage with an eye to locking in reasonable profit margins.”
Top Producer, Mid-November 2010