Fertilizer Costs May Be Hard To Recoup

In a recent issue of CropLife eNews, a Purdue University agricultural economist noted that fertilizer prices have been declining, which he felt was not good news for retailers that had already purchased product at higher prices. Now a University of Kentucky expert has a similar view, which may prove — once again — controversial for retailers.

In recent weeks, nitrogen prices have taken a downturn, but what the future holds for input costs remains uncertain, says Lloyd Murdock, soils specialist with the University of Kentucky College of Agriculture. “Typically, when prices start to go down, they begin to drop in one area first, and then the others follow. So it’s going to be a significantly different situation for producers in the coming months,” he says.

Prices for nitrogen have declined between 20 percent and 60 percent since this summer, with urea prices taking the biggest drop. Producers are selling urea to dealers for around $0.60 per pound, down from $1 a pound in July. Phosphorus prices have declined by about 20 percent. However, the price of potash remains unchanged.

There are several factors that have led to the drop in costs. The price of nitrogen is linked to the price of natural gas, which has been declining.

Another factor is that growers have scaled back on their use of inputs this fall, which has led to an increase in supply and a lower demand. Murdock says he has heard from several local producers that they either significantly decreased the amount of fertilizer they use or chose to forego a fertilizer application this fall.

The price of corn has also significantly dropped off from this summer’s highs. As producers are selecting crops and budgeting for the 2009 growing season, they are finding, with current input costs and the price of corn, it is difficult to make a profit growing corn next year. This could cause many growers to switch to soybeans.

“Anticipation of less corn being planted next year should put a downward spiral on the price of nitrogen,” Murdock said. “The fertilizer industry may need to lower their costs to get producers to grow corn.”

While there is a significant amount of pressure to drop prices, it could be some time before producers actually see price decreases. Even with the current drop, input prices remain higher than last year. Many dealers may still be asking for higher prices because they booked their supplies during the summer.

“In July, prices were predicted to go higher, and some dealers went ahead and booked at higher prices to protect themselves and the producers they serve,” he said. “They are now stuck with the expensive price of nitrogen and will be reluctant to drop it.”

(Source: University of Kentucky)

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3 comments on “Fertilizer Costs May Be Hard To Recoup

  1. Producers cannot expect to have nitrogen available to them this coming spring. With no commitments dealers are forced not to lay in product. With half of the urea that this country uses imported, we will see shortages. It is my understanding that it is impossible now to import enough nitrogen before spring. Especially with the poor NH3 seasons this year. The only thing worse than hi priced fert is none available. Also, if acres are switched to soybeans the corn price will rise and people will want to switch back to corn- surprise! no nitrogen. The supply lines have been disrupted, don’t think that those who wait will get product.

  2. I would like to remind the expert that many sharing his public position across the country, urged the producer to lock in fertilizer prices this summer with their retailer, further fueling the preseason price escalations. This forced the retailer to take position on the dollars they recieved, not what they solicited. This would have been a hedge no retailer would leave unprotected. The dollars involved create too much risk for the retailer not to cover the position. Who would run the risk of not having supply that the customer paid for in advance. This was a real risk. These past events should no doubt change how the retailer does business in the future. Contracts should now take the place of handshakes. It has always been first concern of the retailer to be in supply. This conditioned culture is now about to bite the retailer in a big way because of the reluctance to use BINDING contracts with retail customers. You can bet the retailer had contracts all the way through this market cycle with thier suppliers, and they are beholden to them. Now the weather, along with market conditions has prevented much of this product from being applied, the absence of demand is forcing manufacturers to drop wholesale prices to try and create some form of demand and there just isn’t any, yet. The system is full of product all along the pipeline. The experts should take a look at the work not done this fall season, and ask themselves, logistically how will the industry be able to move the tons required for the 09 crop year with such an absence of fall application. Demand will overpower current local storages in many cases. I guarantee our industry will meet the challenge, despite the situation our free capitalistic market has put us in. Yes, a free capitalistic market, a term the experts like to deny we are in. This has been and will continue to be driven by two things alone, fear and greed. We have just witnessed the impact fear can have, and it’s not over. The retailer isn’t the bad guy here, it’s simple fear created by the entire agricultural industry, and human nature. If they (the experts) expect flat, cheap, and along with that undependable supply removed from a capitalistic market, they will have to office and advise somewhere other than the USA. I for one, am staying here.

  3. As a retailer who deals with giving good agronomy advise to our clients and managing their asset we are not the bad guy. I really like how the industry likes to listen to the so called experts in crop production, and these so called experts lack common sense!
    In our area we have been helping our clients in managing risk. We was asked by our clients to give them a price for the 2009 crop inputs so they could cover their sales of grain to cover this expense. We answered that request and only a few of the growers (15%) actually sold grain to cover their risk. That’s not are fault!
    So the only way for the growers to get a less cost on fertilizer is for the industry to empty the pipe. We can’t refill with lower cost product until the bins are empty.

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