An unusual convergence of events is triggering uncertain spring fertilizer supplies and prices 10-25% higher than those last year. They include:
Fertilizer demand propelled by more corn acres and higher crop prices to meet biofuel production needs.
Sharply higher world demand for fertilizer from countries such as China, India and Brazil where strengthening economies are improving diets.
High prices for natural gas, a major cost component of anhydrous ammonia and other nitrogen (N) products derived from ammonia.
Increasing U.S. reliance on fertilizer imports, especially N products, because anhydrous ammonia production has shifted from the U.S. to countries with lower natural gas prices.
The weakened U.S. dollar, which makes fertilizer imports more expensive to U.S. farmers.
Higher energy prices, which drive up costs of shipping imported fertilizers to our shores and then transporting them inland to retail outlets.
THOSE ARE A roundup of factors cited by Harry Vroomen, vice president of economic services at The Fertilizer Institute; Tim Chrislip, director of product management and business development for the Crop Nutrients Division of CHS, Inc.; and Terry Francl, senior economist at the American Farm Bureau Federation in Washington, D.C.
With 2007 corn plantings up 15 million acres over 2006 in response to demand for ethanol production, U.S. producers and dealers went through all the domestic fertilizer inventory last year, Chrislip says. “Going into 2008, we have no cushion.”
Historically, factors that influence fertilizer prices are a mixed bag of upward, neutral and downward pressures, Vroomen says. “Everything (this year) seems to be on one side of the scale.”
Knowing why fertilizer prices are up so much may not help your bottom line. But you have some options to soften their impact.
Chrislip says the sooner you let a fertilizer dealer know your nutrient needs, the better. “That planting decision (on final acreage adjustments) in March is simply too late,” he says.
“It's tougher for dealers to find fertilizer,” Vroomen says.
So, how tight will supplies be this spring and how high will prices be for N, phosphorus (P) and potassium (K) fertilizers?
Forecasting fertilizer supplies and prices is an extremely inexact science. “Models based on cost of production (e.g., natural gas prices) don't work particularly well in times we currently face with tight supply and strong demand,” says Kevin Dhuyvetter, Kansas State University ag economist, who has tried to develop fertilizer price outlook information. “The markets are not in a long-run equilibrium at the moment.”
One reason is that the fertilizer market, unlike crops, isn't structured around a formal, centralized trading system, he says. “The fertilizer market is not quite as transparent on a daily basis.”
Also, the fertilizer supply/demand balance can't change as quickly as that of crops. For example, while fertilizer demand has been influenced by the jump in corn acres in response to demand for ethanol production, increasing supply to meet that demand takes longer, Dhuyvetter says.
“Depending upon the nutrient mix dictated by the crop, fertilizer cost will be up a minimum of 10% in 2008 and could increase as much as 35%,” says Francl.
RETAIL PRICES BEING quoted this winter have varied widely among dealers for anhydrous ammonia, N solutions, P and K.
A retailer's volume, location, transportation cost, product sources, order/shipping timeline and inventory capacity are factors that can account for large price differences among retail outlets, says Vroomen.
Chrislip notes that for product coming from overseas, it may take up to 90 days from the time a dealer orders the product until delivery to a Midwest farm. The lag between ordering and delivery increases inventory costs and places more importance on early commitments from farmers for their fertilizer needs, he says.
Economies have improved in China, India and Brazil, whose better diets increase fertilizer demand, Chrislip says.
Fertilizer prices are quoted in U.S. dollars, Vroomen says. With the weaker dollar, countries like China and India are strong bidders for fertilizer in the world market, driving up demand and prices for U.S. farmers.
The U.S. now imports more than 50% of its N needs, according to Vroomen, who contrasts that with about 15% imported in the 1990s.
Natural gas accounts for 70-90% of the cost of producing anhydrous ammonia and related N fertilizer products. High natural gas prices in the U.S. have prompted a transfer of anhydrous ammonia production to other countries where natural gas prices are much lower, Vroomen notes.
Between 1998 and 2006, 25 U.S. ammonia plants accounting for 40% of U.S. production capacity closed permanently, he says. “That was a big drop in our supply.” The U.S. had to turn to the world market for that lost production just when world demand was rising 14%, he says. That combination of events helped drive world prices up, along with the weakened dollar.
According to Chrislip, the U.S. imports about two-thirds of its urea consumption and one-fourth of its urea ammonium nitrate (UAN).
He and Vroomen say the weakened dollar has helped drive up K fertilizer prices in the U.S., which imports a major portion of that product from Canada. The U.S. dollar has fallen about 30% against the Canadian dollar, Vroomen says, which is a major factor in the higher K prices we're now seeing.
Production problems have also been a factor in potash prices, according to Chrislip. Flooding closed down a Russian potash mine, taking 1.2 million tons out of the world market.
As for what the future holds, Chrislip doesn't foresee U.S. fertilizer prices returning to what they were in recent years. “You may see some up and down in prices, but not a return to levels we've seen in the past,” he says. The weak dollar and fertilizer demand for crop production to meet congressionally mandated ethanol output are two reasons for that outlook.
SOFTENING THE BLOW
How can you ease the pain of this spring's kiting fertilizer prices?
“My first suggestion to anybody who's really concerned is to throw the old nitrogen (N) guidelines for corn into the trash can,” says George Rehm, recently retired nutrient management specialist, University of Minnesota (U of M).
If you're not using guidelines revised within the past couple of years, you may not begetting the most for your N dollar. The rule of thumb today is 0.8 lb. N/bu. of expected corn yield — a far cry from the old 1.2 lbs. N/bu.
Why? Rehm answers by pointing to improved corn hybrids, including those with biotech traits for better corn borer, rootworm and weed control. Corn has healthier root systems and is under less stress than hybridsof a few years ago. The upshot: Hybrids utilize N more efficiently than their predecessors a few years back.
Agronomists at several universities have developed spreadsheets for determining your most economical N fertilizer rates. You plug in your own numbers including yield history,N credit (corn following soybeans or residual soil nitrates, for example), your fertilizer price, your corn price and other relevant factors.
“This new concept works if we combine it with best management practices, which are nothing more than practices that keep N loss to a bare-bones minimum,” Rehm says.
Rehm suggests Iowa State University's N rate Web page (http://extension.agron.iastate.edu/soilfertility/nrate.aspx ), as it gives you the maximum return to N. Two other online sources where you can run your calculations include Kansas State University (K-State, www.agmanager.info/crops/budgets/proj_budget/KSU-CropBudgets2006.xls ) and the University of Nebraska-Lincoln (http://soilfertility.unl.edu ).
The three sites vary slightly in their approaches to determining the most economic rates of N. For instance, the K-State spreadsheet takes into account other non-fertilizer production cost factors such as pumping cost in the case of irrigated production, says Kevin Dhuyvetter, K-State.
If you don't already have your N in the ground, consider sidedressing it. Producers have gotten away from this practice, but it's still the best way to assure maximum N-use efficiency, Rehm says. Sidedressing, as opposed to application ahead of planting, reduces the risk of losing N to leaching or denitrification before the crop has a chance to utilize it. That consideration is more important than ever at today's fertilizer prices.
Of course, sidedressing involves another trip through the field, which needs to be considered under today's high fuel prices, says Dhuyvetter. Irrigators, on the other hand, could apply the sidedressed N with the irrigation water, thereby eliminating the extra trip, he adds.
And what about other nutrients, particularly phosphorus (P) and potassium (K)?
Rehm says he has “a strong opinion” on that. Some dealers may ask, “What was your yield?” Then, they'll recommend replacing the amount of P and K removed in the harvested crop. “That's foolish,” Rehm says. “You're going to have a really high fertilizer bill, if you follow that approach to fertilizer recommendations.” It's like saying “the soil applies absolutely zero, and everything must be supplied in a fertilizer program,” he adds.
“In recent U of M trials, phosphate and potash rates based on crop removal didn't produce any more corn than U of M guidelines. Recommendations based on removal just cost more,” Rehm says.
Instead, base your P and K applications on soil-test results. If your latest soil testis more than three years old, have new soil tests done, he says.
Another way to take a little of the sting out of high P and K prices is to band rather than broadcast it. Banding requires only half the rate recommended for broadcast applications.
What about other nutrients? Recommendations for micronutrients, such as zinc, vary among growing areas. Rehm advises producers to check out micronutrient recommendations at their respective state universities.
Sulfur, a secondary nutrient, has been getting more attention in recent years, Rehm says. Federally required clean air standards have reduced the amount of sulfur deposited on fields from the atmosphere. More conservation tillage, which relates to less organic matter breakdown and release of sulfur to the soil, is another factor.
While sulfur trials have shown yield responses in some states, Rehm says, yield responses tended to occur on sandy or eroded soils with low organic matter — sites where a sulfur response would normally be expected.