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Late planting decisions spiking fertilizer pricesLate planting decisions spiking fertilizer prices

Roy Roberson 2

April 10, 2009

6 Min Read

As planting time approaches farmers in the upper Southeast continue to struggle with the question of what to plant and how to grow the crops they do plant.

BISHOPVILLE, S.C., grower Dean Elmore contends uncertainties over inputs and commodity prices may force crop shifts.

A result of these delays may be local shortages and price spikes on fertilizer as dealers struggle to sell high priced inventory and to find and finance lower-priced fertilizer inventories.

Long-time economist and ag analyst Glen Buckley, who works for CF Industries, says growers are not likely to see an industry-wide spike in fertilizer prices on the scale that occurred in 2008. However, he says the overall trend in fertilizer prices is up over the next few years.

Speaking at the recent Virginia Soybean and Grain Growers Association annual meeting, Buckley joked that he had been wrong more in the past 12 months than he has in his first 30 or so years in the business.

Buckley said most of the volatility in fertilizer markets growers are seeing now go back to the worldwide financial crisis. Nearly 80 percent of phosphate, for example, is traded. When the financial crisis really escalated worldwide, the phosphate market just died.

Nitrogen is probably the most critical fertilizer for farmers in the Southeast. From 1990 up to 2003, the worldwide demand for nitrogen grew at about one percent per year. Over the past five years the increase in demand from China and other developing agricultural economies has been phenomenal.

“As a result of Asian economies focusing on increased agricultural production, the demand for nitrogen over the past five years has grown by four percent per year. The pressure of this worldwide demand has overtaken our ability to supply nitrogen on a global basis,” Buckley said

To keep up with demand, on a worldwide basis, the industry has to add two to three plants at a cost of one to two billion dollars each — just to keep up with demand, he adds.

“In the U.S. in the past our domestic demand for nitrogen was met with domestic production. In the past eight years we have shut down 40 percent of our capacity. Demand continues to grow at a faster rate, but we have to rely on imports for over half of our nitrogen supply.”

Buckley noted that over 70 percent of the dry urea used in the U.S. is imported. As late as the 1990s, more than 90 percent of the urea used on U.S. farms was produced domestically.

“Depending on foreign producers is problematic enough, but considering where the countries are that supply most of the raw product for our fertilizer, is real cause for alarm. The bulk of our phosphate fertilizers comes from countries in the former Soviet Republic and from the Middle East. Political unrest in any of these areas could significantly impact, in a negative way, how U.S. farmers grow their crops,” Buckley said.

“UAN is a commonly used fertilizer in the upper Southeast and over 30 percent of our supply comes from the former Soviet Bloc countries — another example of the instability we have created in our fertilizer supply,” according to Buckley.

“What we’ve done is take a market that had been a stable supply base for many years and turned it into a highly volatile market that makes both supply and price for U.S. farmers difficult to predict,” he added.

The end result is that farmers don’t know what one of their major input costs, fertilizer, will be. This impacts not only what a farmer will grow, but how he will grow it.

In the upper Southeast farmers simply cannot plant peanuts because there is no firm contract price. The contracts discussed are in the $440-$485 range. To grow 4,000 pounds of Virginia-type peanuts per acre requires adequate inputs in fertilizer, pest control and seed.

Capron, Va., grower Lewis Everett says he would like to grow peanuts this year, but he can’t commit to plant without knowing what the crop is worth, or how much it will cost to grow the crop. Everett is far from alone in having to wait to make cropping decisions.

For the Virginia grower, like so many farmers in the upper Southeast, waiting is clearly the right option, but delaying buying fertilizer and other inputs is going to narrow the window of time that a supplier is going to have to get fertilizer and other inputs the grower will need to grow his crop.

Bishopville, S.C., grower Dean Elmore says he has never farmed in a year where he has been forced to wait so late in the season to decide what he will plant. He farms with his father who has planted peanuts every year since the 1970s.

Like other peanut growers across the Southeast he continues, as of mid-March to wait for a contract, delaying planting of several hundred acres of what would be peanut land. Cotton, he says, is not a good option, but may be his only choice, because he can’t wait much later in the season to plant corn and he doesn’t want to put soybeans in his peanut rotation.

Everett and Elmore are typical of highly successful Southeastern farmers who are caught up in the worldwide economic recession that directly affects the cost of the inputs needed to grow their crop and the price of the crop they grow.

Buckley says fertilizer is caught in the same economic crosshairs and like most segments of the agricultural economy is waiting to see what happens next.

What happened to nitrogen prices in 2008 is a good example of how fragile the U.S. fertilizer market is and how it will likely continue to affect an individual farmer’s ability to make cropping decisions.

“In 2008, the U.S. demand for urea was about 8 million tons with about a million tons imported from China. In April 2008, China took a million tons out of the export market, creating a huge supply shortage that spiked prices and left some farmers without access to nitrogen at any price.

These shortages forced plants all over the world to run at or near capacity and facilities that badly needed down time to repair and replace equipment kept running. The end result will be to further jeopardize urea supplies in 2009 and beyond,” Buckley said.

“On the other side of the nitrogen bubble, India decided to delay purchase of urea and the market started going down. U.S. and Latin American buyers didn’t want to buy into a declining market, and subsequently have higher priced inventory than their competitors. Prices ended up going down as fast as they went up in the summer of 2008.

“Right now no one wants to carry inventory — large distributors are buying from hand-to-mouth. All the global and domestic factors point to a no big price spikes or reductions at least for the first half of 2009,” Buckley said.

The problem, he says, is timing. “We are not sure what’s going to happen. If all the major buyers stay out of the market, the closer and closer we get to planting, we could see major logistics problems because it is physically impossible to move that much product in the market in a short period of time.

“Under that scenario, we could see local price spikes and shortages,” the CF Industries executive said.

e-mail: [email protected]

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