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Fertilizer prices continue to rise

"Fertilizer costs are six times as high as they were six years ago," said David Asbridge, of Doane Advisory Services.

By Jennifer Bremer

Fertilizer costs have continually pushed up year after year--an increase farmers have come to expect.

"Fertilizer costs are six times as high as they were six years ago," said David Asbridge of Doane Advisory Services. "This is partly due to the energy market and the fact that over half the fertilizer is imported from other countries."

Asbridge said a 1.1 percent increase in price was seen per year from 1990 to 2002, but that increase was pushed to a 3.7 percent increase per year from 2002 to 2007.

Global pressure

Part of that was due to the increase in fertilizer demand globally--especially in China and India.

"China used to import fertilizer, but now they have become self-sufficient and can export the excess," he said.

From 1999 to 2004 the world nitrogen supply had not changed much, but as the supplies tighten, prices are pushed higher.

Asbridge said more production plants are expected to come online in the near future, especially globally where natural gas is inexpensive in China and the Middle East.

Many factors continue to affect the fertilizer markets including a wide growth in demand, a decrease in capacity--especially in the U.S.--increases in natural gas prices and record high freight costs.

Urea has been the world's standard for nitrogen use, because it is easy to use.

Urea at the dealer level costs $325 to $350 per ton. Farmers can add an additional $50 per ton to that cost.

With the U.S. ammonia supply, imports account for roughly 45 percent of the total U.S. supply.

Asbridge said phosphate is another source for farmers to use. However, the demand for phosphate worldwide has continued to grow as well. From 1990 to 2001, a 1.6 percent increase was seen, but from 2001 to 2007, the growth had increased to 4.9 percent yearly.

"Countries worldwide are trying to become more self-sufficient with rising food prices, the fertilizer prices have increased also," he said.

Price drop

Some expect fertilizer prices to decrease, just as corn and soybean prices have decreased nearly 50 percent or more from the summer peaks.

Asbridge also said he doesn't believe the drop in prices is completely over yet.

"Fertilizer producers have been reacting to record commodity prices and companies priced their products accordingly," said Terry Francl, senior economist for the American Farm Bureau Federation. "Up until very recently, fertilizer prices were astronomical at both the wholesale and retail level."

While Asbridge realizes spring prices may be lower, they aren't expected to be much lower than fall prices.

"Right now the retailers have inventory carryover and don't want to lose too much money on those inventories," said Asbridge.

Wholesale prices for anhydrous ammonia in the Corn Belt have declined from the $1,000 per ton range to the $500 range. Urea has dropped from the mid-$800 range to the mid-$300 range. Diammonium Phosphate (DAP) has declined from $1,100 to $600 per ton. The decline in potash prices has been less notable, dropping from a little over $900 per ton to slightly over $800, according to Francl.

"The reasons for the decline involve much more than just crop prices. Natural gas prices have declined and natural gas is the primary input utilized to manufacture anhydrous ammonia and typically accounts for 80 to 90 percent of all input costs," Francl said.

Application time

University of Minnesota soil scientist Gyles Randall said since there is basically no difference in environmental risks between fall and spring nitrogen application, the economic differences are favorable for all application.

"On average it will cost about $28 per acre per year to put nitrogen on in the fall and $48 per acre per year for spring application," he said.

Randall's data is based on 10 years of research at the University of Minnesota and across the state.

"If you know what is available for fertilizer and if it is worth the price, it can make a big difference in your crop," he said.

Francl said fertilizer dealers with large, high-priced inventories could be in a difficult position this spring due to indications by farmers that they plan to plant less fertilizer-intensive crops, such as corn and cotton and plant more soybeans which don't use nitrogen at all, since the legumes add nitrogen to the ground.

"Farmers would be well-advised to hold off their spring purchases for as long as possible. The inherent danger in such a strategy is that a spring rush may cause supply bottlenecks. However, nitrogen products can be applied to row crops in the form of side dressing later in the spring," Francl said.

The continual growth in demand for fertilizer around the world as well as domestically will continue to pressure wholesalers, retailers and farmers for years to come.

Jennifer Bremer can be reached by phone at 515-833-2120 or by e-mail at jbremermaj@hotmail.com.

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Date: 1/15/09



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