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Corn+Soybean Digest

Fertilizer Financials

Conventional wisdom among most corn growers is that fertilizer prices will likely head lower this spring along with crude oil and grain prices. The unfortunate reality is that conventional thinking is sometimes wrong.

“If grain prices have come down and oil prices have come down, then it makes sense that fertilizer prices will come down, too. But that's not necessarily what's happening,” says Bruce Erickson, Purdue Extension cropping systems management director. “These factors were strongly linked in the past, but today's situation is somewhat different.”

U.S. fertilizer prices rose sharply in 2008 due to high global demand, and now the industry is trying to keep up, says Erickson. The best predictor of U.S. fertilizer prices in 2009 will still be global supply and demand, more so than crude oil or grain prices, he adds.

Prices for grain, fuel and fertilizer will continue to be sensitive to economic conditions around the globe, says Erickson. “This year, nutrient source is the key,” he emphasizes. “Prices for urea have come down substantially since summer, whereas potash remains high in price due to tight supplies.”

GLOBAL COMPETITION IS also making a difference. During the 1990s, the U.S. fertilizer industry supplied 85% of its domestic needs for nitrogen (N), according to The Fertilizer Institute. That percentage has dropped to 45% today, making an outlook on future N prices even more problematic.

“Fertilizer prices continue to be driven by global dynamics, which are very hard to predict,” says Dave Coppess, vice president, sales and marketing, Heartland Co-op, Des Moines, IA. “Right now, we see no direct correlation between crude oil prices and fertilizer. The relationship between oil and fertilizer became disconnected during the past year due to unprecedented global fertilizer demand, mostly from China, India and Brazil.”

Depending on future demand, fertilizer prices may stay uncoupled from crude oil and energy prices for quite some time, adds Coppess. As a result, retail fertilizer prices may not drop as much as what farmers hope to see.

“Urea has fallen a little bit because we don't apply urea during fall, but wholesale anhydrous ammonia prices have not softened much,” says Coppess. “A potash strike in Canada continues to keep potassium prices high. In fact, a lot of wholesale fertilizer prices are currently higher than the retail prices.”

High prices may cause a small drop in fertilizer demand, says Coppess. “Some of our customers have indicated that they may cut back on their fertilizer application levels this year,” he reports. “A recession in the U.S., which spreads globally, could also temper future fertilizer prices. However, people will still have to eat, and we still need enough fertilizer to produce food for rising populations, so demand won't likely drop too much.”

U.S. CORN GROWERS may be less aggressive with N applications in 2009 than they were this year, but the “global demand for N is still going to be huge,” predicts Sebastian Braum, an agronomic services manager for Yara North America. “The global fundamentals for N prices are still strong. My thinking is that if you can buy urea for $600/ton, then it makes sense to buy now, because by spring I don't think it will go below that.”

Not so fast, says Vince Reincke, a crop insurance agent, market advisor and commodity broker for Strategic Farm Marketing, Tuscola, IL.

“If you haven't already bought fertilizer yet, I wouldn't be in a hurry to buy it for spring,” says Reincke, who grows corn and soybeans in central Illinois. “The dollar continues to rise and I don't see that changing any time soon. As bad as a high dollar is for the grain commodities, it's usually good for reducing the cost for inputs, like fertilizer, which are largely imported.”

All indications are that the demand for fertilizer next year will be the same as this year, however, counters Braum. “We're especially not going to see cheap N come spring,” he says. “Potash prices are not going down much. Phosphate prices have already taken a dive and likely won't come down a lot more.

“We may continue to see some downward movement in fertilizer prices, but by next spring I don't see it going any lower than it is right now,” he says.

Still, with no supply shortages forecast for 2009, Reincke says “patience will likely pay.” Farmers who have no reason for buying ahead might consider waiting for fertilizer prices to drop a bit before placing orders, he advises.

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