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Wholesale fertilizer prices finally turn lower

Agriculture.com Staff 12/22/2008 @ 2:06pm

Surging fertilizer prices have been one of the biggest factors influencing crop acreage decisions in recent years.

But now, for the first time in six years, wholesale fertilizer prices have tilted lower, according to a recent report from the American Farm Bureau Federation (AFBF). It's a welcome flip, but it falls short of reaching the farmer just yet, as retail prices have yet to follow suit quite yet, according to AFBF senior economist Terry Francl.

"The reasons for the decline involve much more than just crop prices. Natural gas prices have declined from more than $11 per million BTUs (1,000 cubic feet) to around $6 per million BTUs," Francl says. "Natural gas is the primary input utilized to manufacture anhydrous ammonia and typically accounts for 80% to 90% of all input costs."

The price drop, which began about two months ago, includes anhydrous ammonia, which has declined from around $1,000 to closer to $500 per ton, and urea, which has dropped more than 50% (from the mid-$800s to the mid-$300s now). Potash prices have been slower to decline.

"Potash prices appear to be retreating much slower, if at all, because more than 90% of the potash used in this country is imported, mostly from Canada but also from some European and former Soviet Union countries. Potash prices are therefore more affected by changes in the value of the dollar, which has declined recently, meaning that it makes imports more expensive," according to an AFBF report.

"Anhydrous ammonia in turn is the basic feedstock for nearly all the other nitrogen fertilizers. So the cost of production of the entire nitrogen complex has waned considerably," Francl adds. "There are similar declines in phosphate production and lower sulfur and phosphate rock prices."

Just because wholesale fertilizer prices are on the decline, that doesn't mean farmers will see a similar slide at the retail level just yet. In fact, many dealers have a lot of inventory on hand -- inventory that was purchased at higher price levels. Before the cost benefits of the wholesale slide can reach farmers, that inventory must be moved, and that will have to happen at higher price levels, not those being noted today. And, that may be a tough task, considering the current pricing picture.

"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," according to an AFBF report.

But, that's not to say they won't have to do something to get inventory moved along. Francl says it will likely happen as dealers "cost-average" their prices lower by "averaging their current high-priced inventories with lower-priced future inventories," Francl says.

"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 adds.

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