Prices for all fertilizer were headed lower, but Russia's OAO Urakali (URKA)—the world’s largest potash producer—made a surprise announcement that it was ending production controls and boosting output next year by 24%. This will likely send prices tumbling; it’s just a matter of when.
"For all three major fertilizer categories—potash, nitrogen, and phosphates—I think 10% to 12% lower prices in 2014 from this year are likely," says David Asbridge, president and senior economist for NPKFAS, a fertilizer advisory service.
"Potash prices could fall much more than that." Wait four to six weeks before getting serious about booking any fertilizer products, Asbridge advises. For spring needs, wait until late fall/early winter, not only for potash, but nitrogen and phosphates, too, because that’s when prices reach their lows historically, he suggests.
For potash in particular, Asbridge urges a wait-and-see approach because fertilizer companies and retailers are still just digesting the news of the price impact of the URKA move. This event is such virgin territory for them that the industry has nothing from the past to guide it. "There will be a tendency for retailers to try and hold potash farm prices up this fall," Asbridge notes. That’s because inventories were built with higher priced wholesale potash. However, the spread between wholesale and retail prices right now is $120 per ton, Asbridge says, and that’s likely to narrow in the months ahead as prices move lower, and would have happened even without the surprise announcement that shook up markets.
Even before the URKA announcement, potash prices were moving lower, so it’s really a question of how much lower. From a Midwest average price of $600 this spring, the July average was $545. "We already had predicted that prices would move $50 to $60 lower from that, to $480 by September or so," Asbridge says. That was prior to the URKA move that may further depress prices. He cautions that these prices do not translate into what individual farmers necessarily pay because of the wide price range for different parts of the Corn Belt, based on transportation.
Reasons why prices were already moving lower include large inventories because less potash than normal was applied this spring, corn prices have drifted lower, and the wholesale/retail price spread. Fertilizer prices tend to follow corn prices, Asbridge says.
"This is the biggest single day event in my 35 years in the fertilizer industry," Asbridge notes. As potash supplies increase from 10.5 million tons to 13 million tons next year by URKA alone, farm prices will decline over time.
Eighty percent of U.S. potash comes from Canada, mostly from the Potash Corp., Mosaic Co., and Agrium Inc. Asbridge expects these companies to follow suit and lower its prices or its risk losing market share. While not good news for fertilizer companies that have seen their stock prices decline in the days following the URKA announcement, it is good news for farmers, Asbridge says, particularly as they are facing lower corn revenue in 2014 than the past two years.
While some have suggested the hit on potash prices could lower other fertilizer segment prices, Asbridge does not see how that could occur because there is really no price relationship among them. Nonetheless, supply-demand factors are driving all fertilizer prices lower. Diamonnium phosphate (DAP) is currently $580 compared to year-ago prices of $630, and Asbridge sees prices bottoming out in late August/early September at around $530. Spring prices will depend, in part, on how much product gets applied this fall, and that’s questionable because harvest will be later than normal. Because of that, Asbridge doesn’t recommend booking spring needs until at least November/December. Without a good fall application season, dealers will be sitting on higher levels of inventory.
It’s possible that ammonia prices could drop to $660 per ton by mid- to late-September, Asbridge says. That would be a $100 per ton drop and $140 less than a year ago. Next month is when he recommends booking fall needs, and early winter for spring needs. Urea is not usually applied in the fall, but Asbridge sees a price dip early winter to $440 per ton from current prices of $510. For UAN 32% nitrogen, he predicts prices to fall from the current average Midwest price of $420 to $360 early winter. "Farmers shouldn’t be in a rush to book anything right now," Asbridge says.