Fertilizer prices — unlike gasoline prices — aren’t going down, even as manufacturers cut production. What will that mean for your dealership and your grower-customers?
According to an article in the Yankton Daily Press & Dakotan, in the eyes of many growers and agricultural experts, fertilizer prices have seemed to defy the normal laws of economics. Despite high prices, makers of phosphate and potash say there’s an oversupply and earlier this month, Plymouth, MN-based Mosaic Co. said that it would scale back production, the second major company in recent weeks to announce production cuts.
Mosaic, the world’s largest producer of phosphate and potash, said it will cut phosphate production by 500,00 metric tons to 1 million metric tons over the next several months. That’s about 10 percent of the company’s annual production. Potash Corp. of Saskatchewan, another large fertilizer company, in September idled about 30 percent of its production capacity because of a labor strike.
Both companies are dealing with their own financial issues, including share prices that have plummeted 50 percent or more since their peaks in mid-June. Mosaic, which is majority owned by agricultural giant Cargill Inc., closed Oct. 15 at $35.75. The stock traded at more than $160 in June.
As a result of curbed production, it’s not likely that fertilizer prices will decline anytime soon, agricultural analysts say. Mosaic, in fact, said that it expects the average price of phosphate to be around $1,020 to $1,080 a metric ton (about 2,200 pounds) — virtually unchanged from its current level — through the second quarter. Many growers buy their fertilizer in the fall and seed in the spring, which means they won’t be able to avoid the current high prices. (CropLife eNews note: Neither will retailers, who purchase those fertilizer inputs even earlier.)
Growers were told this year that rising fertilizer prices were the result of increased demand for grains, leaving some hopeful that fertilizer prices would fall once commodity prices dropped. But the agricultural commodities bubble has burst in recent weeks — corn closed Oct. 16 down 43 percent from June highs and soybeans fell to an 11-month low — amid an unfolding global economic slowdown; yet fertilizer prices have continued to surge upward.
Some growers have turned their anger toward local grain elevator operators, while others have begun to suspect the fertilizer companies of manipulating prices, said Bob Zelanka, executive director of the Minnesota Grain and Feed Association. “It certainly does have the feel like they’re controlling the supply to drive up price,” he said.
In a federal lawsuit filed last month in Minneapolis, Mosaic and seven other large fertilizer companies were accused of conspiring since 2004 to limit competition and drive up prices of potash, which have more than tripled over the past year. Mosaic has denied the allegations.
James Prokopanko, Mosaic CEO, said his company’s decision to cut production was a reaction to an excess inventory buildup — and was not designed to keep prices high. In the commodity price boom that occurred in the spring and summer, fertilizer distributors stockpiled huge amounts of phosphate, before prices rose even more. Many warehouses that store fertilizer nutrients are now almost full, and would have no place to store any increase in production, Prokopanko said. Once growers work through these excess supplies, Mosaic will increase production again.
An unusually wet spring across much of the nation added to the excess supply. Prokopanko said many growers planted their crops later than usual, and the late harvest has caused them to postpone fertilizer purchases — adding to the stockpiles.
“The whole system is backed up,” Prokopanko said. “We have no place to put this product we’re manufacturing.”
Mosaic is not the only agricultural company facing challenges. Excess supplies, sinking commodities prices, and fears of a widening credit crisis have sent shares of farm-related companies into a tailspin in recent weeks. Shares of Monsanto have fallen from more than $140 a share in June to $81.44 on Oct. 15, a decline of about 40 percent. Grain processors Archer Daniels Midland Co. and Bunge Ltd. have experienced similar declines.
David Swenson, an associate scientist in the Economics Department at Iowa State University, likened the run-up in agricultural stocks in the spring to the technology bubble of 2000 and 2001, when investors suddenly realized that demand would not grow indefinitely.