When booking next year's fertilizer, Glen Buckley believes the best prices have yet to come.
"Our recommendation is, if you can wait until spring, wait," says the co-founder of NPK Fertilizer Advisory Service. "This is sort of nutty right now. Should prices be this high? No, not really."
Buckley confirms what most farmers are thinking. Commodity prices have gone up and fertilizer manufacturers are looking to capitalize on the increased revenue per acre.
"A lot of people mistakenly think (natural) gas prices are driving fertilizer prices," Buckley notes. "In today's market, corn prices are driving fertilizer prices, pure and simple."
In the nitrogen market, Buckley rattled off average retail prices in early August. Anhydrous ammonia was at $803/ton; urea, $532/ton; UAN 32%, $440/ton. Through the fourth quarter, NPKFAS predicts ammonia stay fairly steady, maybe falling off a bit. Expect urea to drop to around $500/ton. UAN is likely to stay steady, with some downside potential if retailers hold off buying and manufacturer inventory begins back up.
Anhydrous ammonia's spring price is largely contingent on the fall season. If the Cornbelt gets a combination of a late harvest and poor weather, manufacturer inventory could build and result in a drastic price cut this spring, Buckley says.
"It wouldn't be unimaginable for it to fall by up to $200 per ton between now and the spring season," Buckley adds.
P and K
Inventory management will play a big part in DAP prices as well. In early August, DAP was retailing for around $700/ton. Buckley says this is indicative of a healthy export market and depleted inventories.
However, phosphate producers are currently building inventory for what they believe is going to be a very strong fall season, Buckley says. A lousy fall would mean a lot of stockpiled product. Even if the U.S. has a healthy fall season, Buckley expects inventories to reach capacity by spring.
"Fertilizer manufacturers will tell you they are sold out, but nobody is buying," says Buckley. "Unless they drop prices and cut deals, inventory is really going to build.
"It's sort of a standoff between downstream buyers and the producers," he concludes. "Nobody has to jump into the market right now unless they're nervous about supply and there's no reason to be nervous about supply. If main wholesale distributors wait and hold, (fertilizer) producers will have no choice but to cut deals. They don't have enough storage capacity, and they're not going to stop producing because margins are so high, so they have to start moving product."
On DAP, Buckley predicts an average retail price of around $675/ton through the fourth quarter. Come spring, he expects prices to fall to the low $600s.
Approximately 80% of the U.S. potash supply comes from Canada. The U.S. farm price is tied very closely to Canada's production, Buckley adds.
In early August, retail prices were around $635 for a ton of potash. Buckley says industry insiders indicated suppliers were working to move the price upward going into the fall season. However, with a wholesale price of around $590/ton, Buckley says very few retailers were actually booking potash.
If farmers continue to hold off on booking potash, prices could fall to around $615/ton, retail. Buckley reminds farmers the way to reign in potash prices is to consider skipping a year. This exact scenario happened in early 2009 when potash topped $1,000/ton.
About this time every year, retailers begin the pre-booking process that has become quite common in recent years. However, even with a healthy demand outlook, Buckley does not see supply as an issue this year. He adds that if farmers haven't already pre-booked and their cropping system allows, it may be well worth it to hold off until spring.
"In general, I can't think of any years where there was an actual fertilizer shortage," Buckley notes. "When there are shortages, they are typically a misallocation of product due to weather more than anything."
He reminds producers of how much power they have as to when they pull the trigger. With analysts predicting 93 to 95 million acres of corn next year, it's no secret fertilizer products will be in high demand. The trick is letting supply build, Buckley notes.
Brandt Consolidated's Tim McArdle acknowledges that fertilizer prepay is a relatively new phenomenon. However, he defends its place in today's volatile marketplace.
"It has proven to be a good risk management tool for most growers," McArdle explains. "It gives farmers an opportunity to lock in costs and assure supply."
In fact, he says pre-pay could be an even more important this year. In August, the USDA revised the average corn yield estimate down to 153 bushels per acre. That's barely above last year's dismal yield of 152.8 bushels. With corn stocks at all-time lows, record corn acres in 2012 are a distinct possibility.
"If the corn market stays strong and we believe it will," McArdle adds. "Strong planting in 2012 could lead to higher nutrient prices in the spring. We actually sold some fall prepay to some customers in March. Looking back it was a good decision."