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Serving: IN

Companies Offer Price Later Fertilizer Contracts to Break Logjam

Retailers hope to lure farmers into making decisions.

The December issue of Indiana Prairie Farmer laid out the stand-off between farmers and fertilizer retailers in the cover story. Kerry Graves, Greene County, correctly noted that few farmers in his area were purchasing fertilizer last fall. As it turns out, few farmers anywhere spread as much fertilizer as they normally do in the fall. Applications of fall anhydrous ammonia were also way down. Many farmers stayed on the sidelines completely.

Retailers didn't get to move product, complete part of the workload for the '09 crop early, as they normally do, and were left with warehouses full of product. The problem, some insiders say, is that emptying and refilling warehouses is key to being able to deliver enough product to farmers in a timely fashion before planting. They fear that with a whole season's worth of fertilizer to move in just a couple of months this spring, there could be transportation issues and even spot shortages of products.
That may or may not materialize. Some farmers may elect to sit this year out when it comes to phosphate and potash, or may switch to soybeans and decide that crop doesn't need as much fertilizer this year. The situation may be different for nitrogen, however, if farmers grow corn, they won't be able to sit that one out. Eventually, they will need nitrogen to apply for the crop.

High prices for fertilizer vs. sagging prices for corn and soybeans seemed to entrench farmers on the sidelines. The logjam has yet to break completely. The December article in Indiana Prairie Farmer said it looked like an old-fashioned Mexican standoff, and that it was a test of will to see who would blink first.

Based on reports over the past week, it appears that some retailers may be making a move to help customers make commitments now. Since there is still both corn price and fertilizer cost uncertainty, the trend, at least in Indiana, seems to be offering what once might have been thought 'unthinkable,' – price-later fertilizer contracts. Tony Wolf, a farmer and former regional manager for Indiana Farm bureau, Inc., in southern Indiana, says that he's hearing about such deals in his area. In fact, farmers reported similar deals from three different input suppliers over the past week.

Apparently the dealer offers fertilizer, typically nitrogen, at a price which can't go higher. However, if the price drips between now and a set date, the buyer has an opportunity to lock in the lower price. Apparently one contract is set up so that the farmer who buys the fertilizer can select the actual day he wants the product priced up to a cutoff date in late winter or early spring.

It's too early to tell if these moves will help bring farmers into the market. The goal, one insider says, is to help fertilizer dealers plan for spring, and turn over part of their inventory now so that they can restock.

Stay tuned for further developments in the fertilizer input picture as late winter and then spring unfold.

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