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High Fertilizer Prices Could Hang Around

Industry insiders hint at long-term trend.

One choice you have this winter and into next spring is not to apply fertilizer, especially if your soil tests are already high or very high fro phosphorus and potassium. Reasonable logic might say that since fertilizer prices are apparently going to be historically very high this year, perhaps you live off what you've banked up in the past, and draw upon your reserves. Then when prices return to more normal levels, you can replace what you've drawn off, or build up areas that need to be built up.

There's just one monkey wrench to that otherwise reasonable train of logic. There's no guarantee that skyrocketing fertilizer prices, expected to go even higher before the '08 crop is in the ground, are a one-time phenomenon. In fact, at least two industry sources, neither of which would allow themselves to be named, indicate this could be a much longer, more-long-term trend. In layman's terms, there is no immediate end in sight, or no reason to expect fertilizer prices to drop back to former levels anytime soon. That doesn't mean they won't, because modern agriculture is global and fluid, but it's what at least two people see ahead right now.

Part of the problem is that it's global today, one source says. Demand worldwide for fertilizer nutrients is high as other countries begin to put themselves into position to grow their own food, and adopt more modern farming practices. Imported urea was expected to become a bigger player in the U.S. market more than a year ago, but unexpected demand elsewhere has kept a lot of it from heading toward U.S. shores.

One source indicates that plants were closed in the past, and some may not be reopened. Ones that are closed may take time to get up and running again, even if companies would decide to reopen them. Apparently it's far more complicated than just flipping a few switches and start watching product flow out the end into trucks. Reopening a plant can take months or more, sources claim.

Another source says he's watched the scenario unfold over the past couple years, and that we're now in situations in the fertilizer supply business he has never seen in his 30-plus year career, nor ever expected to see. The latest run-up actually started when so many farmers shifted to corn last year, he believes. Even though some talk about this plant or that being shut down, or transportation problems in Russia, or companies taking a bigger slice of profit, all of which may be true, he says the core of the issue is supply and demand. Last year's run-up in corn acres drained away nearly all the surplus that normally exists in the system after planting. Farmers for the most part got the fertilizer they wanted a year ago to plant that huge crop, but it took nearly all the existing supplies to do it. Once planting was complete in '07, the warehouses were bare, for the most part.

Now any hiccup in the system threatens temporary supply, and with price based on supply and demand worldwide, tends to lend itself to price increases.

A shift back to more soybean acres may take some of the pressure off, since soybeans don't require nitrogen, and some farmers don't fertilizer as heavily for soybeans. But what concerns this source most is whether everyone will actually be able to get all the product they need. Companies supplying the raw products, of which there are only a few remaining, were allocating some products by Thanksgiving. At least some Indiana retailers were reluctant to commit to customers, particularly new customers, and promise them they could sell them products this spring, when they didn't yet know what they were going to be able to get to replace their dwindling supplies in their warehouses.

Through in the usual problems with railroad lines whose main focus seems to be elsewhere, and there could be some pockets of supply problems this spring, this source believes.

So holding off this year may help you avoid costly fertilizer prices for '08. But apparently there's no guarantee that fertilizer will be as cheap or cheaper when you finally decide you must apply in the future to prevent yield loss.

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