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Price Hike

Corn grower Dennis Lindsay says that, if fertilizer prices had faltered after this spring's surge, he might have bought nitrogen (N) for fall applications as early as June. However, N prices have yet to dip to a range that would justify an early purchase, so Lindsay, who farms near Masonville, IA, is still waiting to buy.

As fall approaches, however, the probability increases that fertilizer prices, and N in particular, will jump higher rather than drop lower, says Sebastian Braum, West Coast agronomist for Yara North America. “The [price] outlook doesn't look good,” Braum says. “I don't see the U.S. corn acreage going down or the demand for N going down. As a result, prices aren't likely to come down either.”

With a booming ethanol industry that relies on near-record corn acreage to sustain it, U.S. agriculture will again need above-average quantities of N to supply next year's crop. However, U.S. suppliers will increasingly have to compete for that N on the world market.

“Countries like India have recently been buying N fertilizer in big chunks, which has disrupted the market and raised prices,” Braum says. “Over the last eight or nine months, India has bought close to one million tons of urea.”

With the demand for N increasing, U.S. fertilizer manufacturers are building more facilities, but new domestic production isn't likely to come online for another year — or even two, Braum says. In the meantime, agriculture is on the upswing, both in the U.S. and in developing countries.

“World economies are growing and more people are able to buy more food and higher-priced foods, like meat, which increases demand for feed and fertilizer,” Braum says. “Worldwide, there has been strong fertilizer buying and a lot of government buying. As a result, we'll probably have pretty low N stocks through the rest of the year, and we'll have to import more.”

N imports

U.S. N fertilizer imports have already ballooned from a year ago, confirms Michael Swanson, Wells Fargo & Company agricultural economist. “Nitrogen imports this April were up 8% from April 2006,” he points out. “In comparison, N imports declined 11% from 2005 to 2006, when corn prices were depressed and corn acreage was anticipated to be lower. So there have been much more aggressive imports per month this year, and it's pretty clear the industry has lined up foreign suppliers to gear up for another big corn crop in 2008.”

The tremendous increase in corn acres this spring caught many people in the fertilizer industry by surprise. It doesn't appear that those same people will be caught flat-footed this fall, Swanson says.

In addition to importing more N in 2007 compared to 2006, the U.S. also has been importing more phosphorus (P) and potassium (K), Swanson says. “The surge in K imports is up 21% from one year ago,” he says. “So there should be less of a scarcity premium.”

This fall's fertilizer supply situation should be improved compared to this spring's supply, which was tight, especially for N, Braum agrees. “The expectation is that U.S. suppliers should have plenty of N, P and K available,” he says.

Yet, even with adequate supply, demand will likely keep prices high. “All three major nutrients are in a bull market,” Braum explains. “Everyone who has product to sell is making money. There is also no unused production. Everything the industry can make, they can sell and sell at a good price right now.”

Planning, prepayment

As a result, farmers should plan for higher fertilizer prices, especially for N, and take steps now to protect against sticker shock later. “My recommendation for farmers is to prepay for some N now to hedge their bets,” Braum says. “They'll probably want to get a good portion of their needs prepaid so that they won't be vulnerable to a big price hike when they do need the product.”

Prepaying for some N now is probably a good strategy, Swanson agrees. “Unfortunately, there is no real effective hedging method that protects completely against fluctuating fertilizer prices,” he says. “My recommendation is to blend your way into it so that you're paying about the average price, which is not such a bad thing over time.”

Another consideration would be to keep your operation flexible enough to use the lowest-cost N source possible, Braum adds. “It might be a smart decision to make fall anhydrous applications in areas where you're able to do so,” he says. “Anhydrous ammonia is still cheaper than any other N fertilizer source. So I think we'll see some resurgence in its use during the fall in places where farmers can still apply it without too much loss or environmental degradation. We'll probably see more anhydrous being applied this fall than in the past three years due to the expanded corn acreage and the higher prices for urea and 28% urea ammonium nitrate solution.”

There are many reasons that farmers find fall anhydrous applications to be cheaper and more practical to apply, says Antonio Mallarino, Iowa State University Extension agronomist. “All N tends to be more expensive in the spring than in the fall, but liquid N is typically more expensive then than any other time, because of its widespread use in spring and in side-dress applications,” he says.

The recent trend in agriculture has been to use more liquids and more granulated urea products, due to safety and environmental issues. “It's safer to transport and store urea and liquid N compared to anhydrous ammonia,” Mallarino says. “There is also more awareness about the potential for N loss from fall anhydrous applications now. However, spring-applied N can also be lost. This year, farmers in Iowa could have lost as much N in the fall as N applied in late March.”

Side-dressed N

In-season N applications add flexibility to nutrient management, because they allow farmers to make adjustments after early spring weather conditions become known, Mallarino says. “Iowa research shows that, with normal weather, corn will still respond to N up to tasseling stage,” he says. “Corn at the V7 to V8 stage is when exponential growth begins. In theory, that's when large amounts of N begin to be needed.”

Farmers who raise continuous corn, in particular, should consider some preplant and some side-dressed N, Mallarino advises. However, wet weather or inadequate equipment can keep farmers out of fields during this time. “Especially for corn after corn, I would never recommend side-dressing N only,” Mallarino says. “You need to have some N applied before planting.”

Lindsay says he prefers to apply anhydrous ammonia compared to liquid fertilizers. “We haven't seen that liquid fertilizer applications are any more effective than either fall or spring anhydrous applications,” he says. “We mainly apply anhydrous in the fall, but we also do spring applications on light, coarser soil types, where it's not appropriate to apply in the fall.”

For more than 10 years, Lindsay and Mallarino have worked together in on-farm field trails that evaluate variable-rate technology (VRT) equipment for manure and commercial P and K applications. “These studies have shown much better P and K management with VRT compared with the traditional uniform application rates,” Mallarino says.

Lindsay also has cooperated in Iowa Soybean Association (ISA) On-Farm Network studies comparing fall-applied versus spring-applied anhydrous ammonia with side-dress and with N-Serve nitrification inhibitor. “Right now, we're looking at putting out a fixed rate of 120 lbs. N in the fall, with and without N-Serve,” Lindsay says. “We're comparing that to a fixed rate of 75 lbs. N in the fall, with and without N-Serve. So we'll see if we can get by with less N and find out how much N-Serve can help. That trial is now in place with funding from the ISA.”

Past on-farm research shows losses from fall-applied N have typically been minimal, Lindsay says. “Fall-applied N is getting a very bad rap, but the trials we've run prove that it's a good practice for most soils that we've used it on,” he says. “On some soil types, it is a bad practice, but no farmer wants to put it on and lose it. So that's why we're participating in the ISA On-Farm Network. It allows us to compare what happens in our fields with other farmers in our area and across the state.”

Threat from hurricanes

With fertilizer prices likely to increase this fall and winter, farmers are justified to be concerned over N loss. Yet, another threat that farmers should consider is that hurricanes may disrupt fertilizer supplies in 2007 like they did in 2005, Swanson says.

“If we get hit with a big hurricane this summer that knocks out our domestic natural gas production [the main feedstock used to produce fertilizer], then fertilizer supplies could again fall short and prices would increase dramatically this fall,” he says. “However, those types of disasters are hard to predict.”

Forecasters have been wrong before, but they say that this hurricane season, which runs from June 1 until November 30, is likely to be an active one — more active than the 2005 season, which brought Hurricanes Dennis, Katrina, Rita and Wilma. For 2007, Colorado State University forecasters are predicting 17 named storms, nine hurricanes and five intense hurricanes.

An increased reliance on fertilizer imports also may make the industry somewhat more vulnerable to hurricanes now than in past years, says Harriet Wegmeyer, director of communications for The Fertilizer Institute. For example, she points out that the “last fertilizer year was the first time that the U.S. has imported more than 50% of its N fertilizer.”

Oil prices are another factor that could affect U.S. agriculture, Swanson cautions. If oil prices were to drop significantly and remain at that level for some time, it would drive ethanol prices lower, reduce ethanol profit margins and hamper the ethanol plants' ability to pay a good price for corn, he explains.

“This recent surge in fertilizer use is all about ethanol supporting $4 corn for the foreseeable future,” Swanson says. “If the ethanol boom goes bust, both corn and fertilizer prices will also drop.”

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