Fertilizer Prices Begin to Soften

 
Fertilizer Prices Begin to Soften

Farmers may have more pricing power than they think, as shown by recent trends in fertilizer prices.

Last winter, analysts at Rabobank’s Food and Agribusiness Research and Advisory group suggested that fertilizer prices would remain relatively sticky in 2015, despite lower crop prices. “With moderately bearish sentiment in [the first quarter of 2015], standard price support will originate from spring buying as stocks deplete,” they predicted.

They were wrong.

“Our expectations proved too optimistic as evidenced by price declines of 6 percent for DAP and 11 percent for UREA since February 2015,” they wrote in their April 2015 report released this week. “A series of channel checks, including ‘on-field’ interviews of producers, were conducted ahead of the 2015 planting season which commences on or about April 20. What we learned suggests that pricing power should remain on the side of growers over the next six months, thus placing incremental pressure on overall U.S. fertilizer prices.”

With prices at $3.71 for May corn and market analysts giving a bearish outlook on soybeans, producers are watching their pennies. According to a Farm Journal Media survey, nearly one-third (30.9%) of farmers plan to purchase less fertilizer in 2015. As Rabobank discovered, growers are buying less phosphorus and potassium and choosing anhydrous ammonia rather than liquid nitrogen. So are buying groups. “Cooperative that purchase and resell fertilizer to their members are likely to reduce forward year purchases (which typically take place in July) given high storage levels of key nutrients,” the report suggested.

None of this surprises Jerry Gulke, president of the Gulke Group in Chicago and a farmer in Illinois and North Dakota.

“The fertilizer and seed issues were one of a ‘cat and mouse game’ with a lot of fertilizer inventory on hand that wholesalers don’t want to sell at a loss,” Gulke said. “New inventories becoming available both from on and off-shore sources as well as new plants coming on-line promise to increase the already surplus situation … Somehow it seems that supply/demand 101 isn’t applicable to suppliers of our inputs unless we just say no!”

With farmers reducing their purchases, though, those stubbornly high input costs may finally come down. In 2016, growers have the “potential to see a 20% reduction in everything, including fertilizer, chemicals, and perhaps seed,” said Gulke. “Lots of seed will be carried over to 2016.”

He might do the same. “I have not purchased one input yet, and from what I can glean, the producers in the main production states have lagged as well.”

What’s happening with fertilizer prices in your area? How are you adjusting your input purchases this spring? Let us know on the AgWeb discussion boards.

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