Fertilizer Bargains

February 12, 2010 09:27 AM

How do you spell relief? For many farmers, it's the current about-face in fertilizer prices.

Bruce Erickson, Purdue University economist, expects 2010 corn fertilizer prices to be reduced by one-third for nitrogen (N) and phosphorus (P), compared with 2009. The percentage discount could be even more for potassium/potash (K) considering current prices.

"Depending on when fertilizers were purchased, some farmers may have spent $200 per acre or more to fertilize their 2009 crop, more than rent in some cases when you consider N, P and K replacement and any liming requirements,” Erickson says.

"By comparison, our budget projections for 2010 put corn fertilizer expense in the $100 to $130 per acre range, depending on soils and crop rotation,” he adds.

Fertilizer prices reflect market conditions, and supply and demand factors will differ among nutrients, says Harry Vroomen, vice president of economic services at the Fertilizer Institute.

N, which is produced predominantly from natural gas, is typically the most price-sensitive to changes in energy costs. "U.S. nitrogen production capacity has declined by 42% since 1999 as domestic natural gas prices increased by about 300%,” Vroomen says.

"Imports now account for more than half of our total nitrogen supply. Overall, 56% of U.S. nitrogen fertilizer came from other countries in fiscal year 2007/08,” he says.

"A weaker dollar translates into higher prices because it raises the cost of the fertilizer we import and it makes the fertilizer we export less expensive for foreign countries, which means they purchase more fertilizer from the U.S. than they would if the dollar were stronger. The higher demand for fertilizer exports from these purchases results in higher domestic prices.”

Vroomen attributes the fertilizer price decline, which began at the end of 2008, predominantly to a drop in domestic and world nutrient demand. Declining natural gas and diesel fuel prices and lower ocean freight rates have also contributed. Lower retail fertilizer prices lagged wholesale prices because material purchased by retailers at higher prices had to work through the system.

Look ahead. University of Nebraska soil specialist Gary Hergert says it appears farmers purchased less N, quite a bit less P and significantly less K in 2009. "Farmers know they need N year in and out, but figure they can draw on P and K reserves for a while.

"Fertilizer prices should be a bargain compared to past years, but you will still need to comparison shop,” Hergert says. "It may be a challenge to get soil test results this year because of the late corn harvest. Soil P and K levels do not change rapidly, so you can use historic field averages [if you have yearly samples] as a guideline.”

Here's what Hergert sees on the horizon for prices for 2010:

World urea prices slid to 2006 levels and have slightly rebounded with New Orleans urea prices off the ship recently trading for $320 per ton. Hergert says urea in western Nebraska is $400 to $470 per ton (43¢ per pound to 51¢ per pound N).

"The best nitrogen buy is ammonia,” Hergert says. "The late corn harvest created high inventories.” In January, ammonia fob in the Corn Belt was running $350 per ton to $400 per ton. Panhandle growers saw $435 per ton to $480 per ton, Hergert says. N solution (32%) ranged from $205 per ton to $290 per ton in western Nebraska.

Hergert suggests looking hard at the N sources you use to see if changes could benefit profitability. Ammonia is expected to be a good buy and N solution prices are even lower than urea.

"The Chinese are expected to lower N export tariffs, and the Russians have opened a new facility to load supertankers with ammonia, which provides competition for world markets,” Her-gert adds. However, Vroomen says the reluctance of railroads to move anhydrous domestically is adversely impacting rail rates in some regions.

Prices for diammonium phosphate (18-46-0) more than quadrupled in 2008 before falling back to 2006 levels this past spring. Hergert says prices are running under $330 per ton fob at many Corn Belt locations. He finds prices of 18-46-0 and 11-52-0 comparable in western Nebraska, in the $400 to $480 per ton range.

"If soil P levels are low, this may be a good building year,” he says. "Strip-till or zone placement of P at 3" to 5" below the soil surface should perform similar to row application.” In neutral pH ranges (6.8 to 7.3), P broadcast and incorporation is still a good option.

Canada holds the cards in the potash market. "Manufacturers watched what was going on in the phosphate market as they were deciding how to price potash last spring,” Hergert says. "When lower prices for phosphate did not stimulate sales in late winter 2009, they decided they would keep the potash price constant at $800 per metric ton. Eventually, that decision held down potash sales and prices have since dropped to $400 per metric ton or less.”


You can e-mail Pam Smith at psmith@farmjournal.com.

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