High Fertilizer Prices to Persist

November 16, 2011 04:56 AM

Methods exist to stretch your dollars, though

Sky-high fertilizer prices are likely to remain a reality into 2012 and supplies should be plentiful, for the most part.

"I see flat to slightly higher fertilizer prices," says Dave Schwartz, national sales manager of SFP. "The market has stabilized." It’s not likely to go down like it did in 2008, he adds.

Fertilizer supplies should be plentiful, with two exceptions: liquid 10340 phosphorus and sulfur, Schwartz says. "If you want to apply 10340 starter, I’d book it and pay for it now," he encourages. "It appears that supplies might be only 75% of demand."

If actual fertilizer costs in 2012 reach the $162 per acre projection, it will be the second highest on record for central Illinois farms with high-productivity farmland, says Gary Schnitkey, University of Illinois farm management specialist. Actual fertilizer cost was $124 per acre in 2010 and is projected at $150 for 2011. Since 2007, fertilizer costs have been above $100 per acre, with the peak of $185 reached in 2009.

"While fertilizer prices have changed over time, it is not likely that fertilizer price declines will lead to per acre costs below 2010 and 2011 levels," Schnitkey says. "Higher fertilizer costs continue the trend of higher production costs for corn, leading to higher break-even corn prices necessary to cover costs."

Less Cost Per Acre? There’s another way to look at it, however, Schwartz says. Growing 200 bu. corn per acre at $6.50 per bushel provides a gross return of $1,300 per acre. Using phosphate prices of $750 per ton, potash at $665, anhydrous ammonia at $820 and ammonium sulfate of $420, it costs a farmer 40 bu. to 45 bu. per acre for fertilizer, assuming 80 units of phosphorus, 100 units of potash, 200 units of ammonia and 20 units of ammonium sulfate.

High Fertilizer Prices to Persist
Actual fertilizer costs for high-productivity farmland are projected to reach $162 per acre in 2012, which would be the second highest level on record.

"That’s a better deal than in past years," Schwartz says. "When corn prices were $2 to $2.10, it took more bushels per acre to cover fertilizer cost. People don’t often look at it that way, however."

Emerson Nafziger, University of Illinois agronomist, agrees that nitrogen costs relatively less with today’s corn prices. For the past 10 years, 1 bu. of corn has been worth about 10 lb. of N, but today 1 bu. will buy about 12 lb. of N, he says.

Fertilizer prices have become more volatile. "The fertilizer market is a global market and changes with crude oil prices," Schwartz says.

Farmers need to book the price of their commodities at the same time they lock in their fertilizer prices, he suggests. "There is no longer a booking program from August through February like there used to be."

Fall-Applied Nitrogen Risks. One way to cut costs is to use a variety of management practices, with reducing nitrogen losses at the top of the list. For example, as rainfall patterns change in the Corn Belt, there have been more nitrogen losses from fall-applied nitrogen.

"If trends continue with rainfall, it will be harder to recommend fall-applied nitrogen," says Dan Kaiser, nutrient management specialist at the University of Minnesota. He suggests applying as much nitrogen as possible in the spring.

Because late summer and fall were so dry and the corn crop shut down early, there might be more carryover nitrogen available for next year’s corn crop than normal, says Jeff Coulter, University of Minnesota agronomist. He suggests split nitrogen applications as an option for enhancing corn use efficiency, with some nitrogen applied at planting and the remainder applied as sidedress, depending on soil tests.

"The combination of split applications and stabilizers are really making a difference," Schwartz says. "We’re picking up significant yield increases and using less nitrogen." Producers who used to apply 200 lb. in the fall are now using split applications, reducing total nitrogen by 20 lb. and boosting yields 25 bu. per acre, he says.

"This is one of the biggest changes in culture we need to do in the next three to five years," Schwartz adds. "We’re wasting too much fertilizer, and it’s bad environmentally."

When to Apply? Nafziger says that while the past three springs in the Midwest have been wet, and thus nitrogen losses have been high, he is not confident that this is now the norm. In addition, the problems each year have been different. "In 2010, it was more of a root problem. This year, the root system was good, but the plants couldn’t take the nitrogen up without water," he says.

"Ideally, we’d like all nitrogen to be applied when corn is 1' to 2' tall and starting to take up nitrogen, but that won’t work for most people, at least on all fields."

For many producers, what seems to work is applying some in the fall; some in the spring; before, during or after planting; and at sidedressing, Nafziger says.

He adds that in the southern Corn Belt, with its warmer fall temperatures and lighter soils,
applying nitrogen in the fall is not generally a good idea. Further north, where fall temperatures are below 50°F and soils are heavier, fall-applied nitrogen often works but spring losses are still possible.

"The anhydrous form is the safest from nitrogen loss," Nafziger adds. Nitrification inhibitors help keep nitrogen in the ammonium form, so it is useful in the fall or very early spring but less useful later in the spring, he notes.

Numbers Tell the Story

High Fertilizer Prices to Persist 2Across the board, fertilizer prices are pegged to slightly increase, but some see a modest break between now and spring.

Urea prices have continued to climb to $580 per ton, depending on where you are in the Corn Belt, says Gary Hergert, professor of agronomy at the University of Nebraska.

He thinks it will be down to $570 per ton by spring.

Urea prices won’t fluctuate that much because of a surprise purchase by India that is tightening global supplies, says David Asbridge, president of NPK Fertilizer Advisory Service. Another wild card, he adds, is China,  which accounts for 10% of world trade on urea. It has been placing a 100% tariff on urea exports in the spring and fall to make sure urea is available for its farmers, and lowering the tariff to 10% in the summer and winter.

The outlook for ammonia is similar. Current prices range from $800 to $875. "There’s a premium for fall-applied," Hergert says. "If you’re applying ammonia, you have to weigh the cost differential before deciding to apply this fall. It all depends on how many acres you have to cover."

Depending on how much nitrogen farmers purchase and apply this fall, ammonia prices could ease from $845 per ton in the Midwest in late October to the high $700 range, perhaps $800 during the winter, with an uptick in spring, Asbridge says. "Corn prices are a big, big factor," he says, noting that corn acres could be up 2 million in 2012 from this year. That will create more nitrogen demand, he adds.

For 32% UAN, Asbridge anticipates that the present price of $453 per ton will decline by $30 to $40 by the spring. "It’s similar to urea; there is support in the world market."

Diammonium phosphate (DAP) prices, meanwhile, are likely to decline $30 to $40 between now and spring from the current farm price of $705. "We’re beginning to see some inventory building," Asbridge notes, because Saudi Arabia is becoming a significant producer.

The price for potash, currently at $645 per ton, is likely to decline $20 per ton by spring. Russia and Belarus are joining forces and will produce 30% of the world’s potash, with Canada producing 35%, Asbridge says.

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