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Issues surrounding the fuel and fertilizer price boom

BATON ROUGE, La. — Booming fuel and fertilizer prices are threatening farmers’ bottom lines and throwing next year’s planting predictions into confusion.

“Fertilizer costs are absolutely prohibitive,” says David Lanclos, Louisiana Extension soybean, corn and milo specialist. “We’re already hearing misgivings about planting wheat, corn and even cotton. I think soybean plantings will increase big-time here. In the other crops, you’ve got to put the nitrogen out. With beans, that isn’t the case. With crude (oil) at $55 per barrel, beans are a little easier to plant. In addition, our early beans have been a success this year.”

Products and prices

Last year at this time, the cost of urea at the New Orleans port was around $185 per ton. This year, the same product is $250 per ton.

“To get it into the Mid-South, you have to add transportation costs,” says Bubba Vance, vice president of Oakley Fertilizer, Inc., from the company’s North Little Rock, Ark., office. “The dealer price here last year was around $220. Today, it’s closer to $300 and by the time wheat season arrives, I believe the price could be even higher.”

There a several things causing the increase, says Vance. First, production has shut down around the United States. “For example, last year there was a plant operating around Blytheville, Ark. Not this year.”

Second, the cost of vessel freight has doubled. Much of that is fuel cost-related, but it’s also due to supply and demand. Many products are flowing around the world, and booked-up freight is causing rates to rise.

An example of this, says Vance, is steel and other commodities moving into China at an increasing clip.

Third, once in the United States, transportation costs from ports are up as much as 30 to 40 percent.

Fourth, new security restrictions have been put on agriculture-grade nitrogen products in general. There are reports some Mediterranean Sea ports, to thwart terrorist opportunities, have gone to daylight-only operations, slowing shipments.

Here in the United States, “the Coast Guard and Homeland Security folks have insisted that we provide guards, surveillance cameras and other things to watch the ports closely,” says Vance. “The barge and vessel businesses have to pass that cost on. As a result, freight has almost doubled.”

Ammonium nitrate is facing similar price jumps. Currently, the product is being sold to farmers for $220. In the New Orleans area, it’s going for $190 — considerably higher than last year’s $135.

Further, the cost of getting it from New Orleans to St. Louis has risen from $4.50 to $9 or $10. On top of that are the same security-related expenses faced by urea.

What about long-term?

“I think over the course of the next 18 months, prices could trend back down,” says Vance. “There’s added production coming on-line.”

The availability of product isn’t an issue, says Vance. “We’re still able to get it here, it’s just expensive. Regarding demand, the biggest thing we’re running into involves the rest of the world — Brazil, Argentina, Uruguay. The United States now has to compete for the tons available. It isn’t like the past when the tonnage was easily available.”

Vance expects tonnage sold to be less in the coming year. “Honestly, it’ll be less, although I don’t know how much. However, I believe this will be a short-term thing until the supply and demand gets back into balance. That should take 18 months or less.”

Soil fertility considerations

Anytime the price of fertilizer goes up, farmers begin asking questions about cutting input expenses. Unfortunately, some producers look to alternatives that aren’t the best ones, says Leo Espinoza, Arkansas Extension soil specialist.

“I don’t remember fertilizer prices ever being this high,” he says. “Six or seven years ago, farmers were complaining because urea was $190 per ton.

“We know that yields will be limited if nitrogen is not applied at rates needed by plants. Sometimes producers look to products that may seem attractive since they’re marketed on a volume basis. Some of these products cost considerably less than urea. But when buying fertilizer, farmers need to consider how much actual ingredient they’re purchasing instead of how much bulk is in the bottle.”

For instance, says Espinoza, urea contains 45 percent nitrogen. “Currently, urea is running over $275 to $300 per ton. In the market, there are other products much less expensive than urea. But those products, which normally cost $100 to $150 per ton, have a lower amount of the things crops need — maybe only 15 percent nitrogen. On a bulk basis, the costs are attractive. But when you look at the cost of nitrogen on a pound basis, it’s not what’s normally needed.”

High yields this season also prompt another concern for Espinoza. “There’s no question that with the high yields we’re seeing this year we’ve removed more potash than normal,” he says. “Farmers should test soil — the absolute best way to find out how much nutrition the soil holds. There are situations where farmers have been applying fertilizer for several years. Soil tests can show no fertilizer need be applied. And instead of adding fertilizer where it isn’t needed, a farmer can concentrate his inputs only where needed. Soil tests tell him where that is.”

Next season, farmers may want to consider a different philosophy when viewing their fertilizer program, says Espinoza. “Researchers feel as long as we replace what the crop is removing, everything will be okay. The build-up and maintenance philosophy — which is traditionally followed by private operations — says that in addition to replacing what the crop is removing, an extra dose is added. Well, this is a year when farmers should consider hitting fields only with what’s needed.”

Regardless, Espinoza warns against cutting too many fertilizer corners. “We need to make sure the recommendations are followed for fertilizer application. If the plants don’t get a needed nutrient, there’s a good chance yield will be impaired.

“Compared to last year, nitrogen prices have increased around 5 cents per pound. A cotton farmer could expect fertilizer cost increases between $5 and $10 per acre. While that is significant, in reality the potential yield loss from not putting out adequate nitrogen exceeds the increased fertilizer cost.”

The key to successful production is controlling the things you can, says Espinoza. One of those things is applying sufficient fertilizer.

“When production input costs increase, that’s the time to maximize yields. If we cut corners, it can create a domino effect to a crop’s detriment. Fertility is important not only for a plant’s nutritional status, but also promotes plants’ resistance to some diseases.”

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