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Demand Drives Record Fertilizer Prices

Spring supplies could be in question despite more imports.

Editor's Note: Farm Futures continues its series taking an in-depth look at the fertilizer price runup. While higher crop prices have been good news on the farm, there's a bad-news scenario building for fertilizer costs. Our coverage continues with a look at key factors impacting prices for 2008.

Prices for fertilizer are surging to record highs due to surging global demand for all forms of crop nutrients says Michael R. Rahm, Vice President of Market & Economic Analysis at Mosaic Co., a major U.S. producer of potash and phosphate.

  • U.S. imports of all three main nitrogen products (ammonia, UAN and urea) are up sharply from a year ago. Imports of anhydrous ammonia, urea and UAN solutions so far this fertilizer year are up 6%, 54% and 118%, respectively. The U.S. now depends on imports for more than 50% of its nitrogen needs.
  • U.S. imports of the main potash product, muriate of potash, so far this fertilizer year are up 13%. The U.S. imports most of its potash from Canada.
  • Domestic shipments of the two main phosphate products - diammonium phosphate (DAP) and monoammonium phosphate (MAP) - from U.S. production points are up 35% so far this fertilizer year while exports of the same two products are off 24% during the same period. The U.S. exports phosphate, but even with the weak dollar, exports have dropped while domestic shipments have increased.

"The reason for the surge is exceptionally strong global demand due to high agricultural commodity prices," says Rahm. "New crop corn for 2008, 2009 and 2010 is trading north of $4.30 per bushel. New crop soybeans for 2008 and 2009 are in the $9.50 to $10.50 per bushel range and new crop wheat prices for 2008 and 2009 are in the $8 range."

Crop nutrient markets are global and other countries are hungry to buy those nutrients, notes Brian Waddell, who handles sales for Mosaic in Illinois. Potash imports for Brazil, China and India were up 33%, 74% and 40%, respectively during the first nine months of 2007.

"If you're a fertilizer producer in Russia or the Black Sea and you can sell it to India, China or Brazil for a higher price than in the U.S., you will," says Waddell.

Prices double

The price of granular potash fob a Midwest warehouse increased from $210 per ton at the beginning of 2007 to a record of more than $270 per ton this fall. Winter fill prices have surged approximately $80 to more than $350 per ton today.

International prices also have skyrocketed during recent weeks. For example, the Belarus Potash Company (BPC) increased the price of standard potash delivered to Southeast Asian markets from $360 to $400 per ton in early November. By the end of the month, suppliers already had sold product to Southeast Asian buyers at $450 per ton. BPC also is implementing an increase in the price of granular potash delivered to Brazil to $400 per ton effective January 1, a jump of $55 per ton.

The price of DAP Mosaic produces from phosphate rock mined in Florida went from $255-$260 per ton FOB Tampa vessel in January 2007 to $550 per ton to buyers in Central and South America, says Rahm. "We've basically seen more than a doubling of prices for phosphate here in 2007."

About six countries in the world account for 90% of the potash fertilizer sold around the world — and the U.S. is not one of them. The U.S. imports up to 90% of its potash needs.

"What a farmer pays in Illinois for N, P or K will depend on everything from exchange rates to policies in India and china or how the crop looks in Brazil," says Rahm.

That leaves American farmers few options for affordable nutrients. Because of high domestic natural gas costs, many U.S. fertilizer plants have closed their doors.

Meanwhile over the past five years world nitrogen demand grew by 14%, phosphate by 13% and potash by 19%, according to The Fertilizer Institute, the trade association for the U.S. fertilizer industry.

"The agricultural environment is very strong in all parts of the world and that is translating into extremely robust nutrient demand worldwide," says Rahm.

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