Fertilizer Supply Frenzy

February 6, 2011 06:14 AM

Gary Hergert says four elements combined to cause skyrocketing fertilizer costs this past fall: supply, demand, fear and greed.

The University of Nebraska economist looks for some moderate increases above current levels this spring and summer as the fertilizer industry tries to recover losses from high-priced inventory followed by plummeting prices.

"As long as corn prices stay above $6 per bushel, fertilizer prices will stay strong," Hergert predicts. Price hikes of 10% to 15% higher are possible this spring, he says.

Not everyone agrees. David Asbridge, president of NPK Fertilizer Advisory Service, says that while volatile, it is likely that fertilizer prices, especially anhydrous ammonia, will recede a bit from this past fall’s peak.

He urges growers to lock in supplies even if it seems pricey. "Now dealers are cautious about building inventory," Asbridge says. "The lack of inventory resulting from dealer hesitancy to lock in supplies has added to fertilizer price volatility."

It’s a World Market. Ten years ago, the U.S. produced most of its nitrogen and prices were more dependent on natural gas prices. Today, China is an important urea exporter and since 2008, the
Chinese government has put high export tariffs on urea and diammonium phosphate (DAP).

dry urea

Asbridge calls this past fall’s price increase "a perfect storm" of tight world supplies, high crop prices and farmers needing to "catch up" on fertility levels drawn down during the previous two years.

Still, he expects high prices to abate somewhat. High global fertilizer prices have caused a lot of nitrogen producers, such as Trinidad and the Middle East, to really ramp up production.

Don’t count on a return to the low and stable levels of a decade ago, though. Asbridge says volatility will likely remain the norm and there might be a widening gap between wholesale and retail prices. He adds that if there is "a huge corn crop in 2011, fertilizer prices will drop along with corn prices."

Overall, Asbridge looks for urea and DAP retail prices to decline $50 to $75 per ton from fall prices. Potash prices will decline $40 to $50 per ton after the peak spring demand period, he predicts.

Because fertilizer prices are so high, focus on maintaining fertility levels, not building them, Hergert says. Applying fertilizer when the plants need it most through split nitrogen applications and banding phosphorus makes sense this year.

Too Many Cutbacks? Iowa State University soil scientist John Sawyer cautions that high fertilizer prices can cause producers to overdo cutbacks.

High yields are resulting in more nutrient removal (especially phosphorus and potassium) than some producers think, thus depleting soil reserves.

Sawyer urges growers to have realistic goals and take advantage of the corn nitrogen rate calculators available from many land-grant universities. These tools help measure nitrogen
removal and credits.

University of Minnesota agronomist Jeff Coulter notes that soil rotation affects corn nitrogen needs. When compared with corn on corn, corn following soybeans reduces corn nitrogen needs by 40 lb. per acre. In comparison, when corn follows an alfalfa stand with at least four plants per square foot on medium and fine textured soils, no nitrogen is needed for the first year of corn. In the second year, growers need just half the commercial rate of nitrogen for corn following corn.

Fall Shape Up. University of Minnesota agronomist Dan Kaiser says soil fertility levels should be in good shape because of this past fall’s extended warm period. The warmer weather allowed soil residue more time to break down, increasing beneficial microbial activity that should make nutrients more available to plants early this spring.

Because of ideal conditions this past fall and the unlikelihood of major nitrogen losses this spring, farmers should be able to cut back slightly on nitrogen, but not phosphorus or potassium, Kaiser says.

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