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Fool me twice, shame on you!

Agriculture.com Staff 03/19/2009 @ 7:16am

Fertilizer reps/salesman continue to repeat the mantra that had merit prior to July, 2008: "You better buy it now, because it's going to go up!".

This was correct advice prior to July, 2008, but since then has been very bad advice. While markets of every other kind (commodities, stocks, houses - everything) had dropped significantly since then, fertilizer dealers seem to have the record stuck on the same old saying "Buy it now as the price will rise."

This advice fooled farmers once following July, 2008, but the advice was very bad to the point of most nitrogen and phosphate prices dropping almost 67% or 2/3 from their summer highs. Not only was this wrong, but it was very, very wrong! This expensive lesson cost many farmers a lot of money last fall as prices tumbled lower. "Fool me once, shame on you!" That saying was perfect for fertilizer dealers who were dead wrong on the market last fall, and advised farmers to buy high priced fertilizer while prices of almost all other commodities were tumbling lower.

But worse than that first lesson, some farmers might learn it all over again as we still hear fertilizer reps saying things like "..prices will rise this spring again, so you'd better buy it now.". Personally, I couldn't disagree more! I'd rather buy already discounted futures/options of natural gas, crude oil, unleaded gas, or heating oil rather than virtually any fertilizer cash market right now. These energy markets are showing signs of trending higher, a much better bet considering the sharp decline they've already experienced (and cash fertilizer prices haven't completely followed.)

For anyone who listens to this advice to buy fertilizer because it's going higher, there is an equally appropriate saying that applies here: "Fool me twice, shame on me!" In other words, if I allow myself to believe this sales talk again, it is no longer the fertilizer salesman that needs a talking to, it is myself. I, and I alone, am responsible for listening again to this ridiculous mantra. And if it costs me a fortune (again!), then I and I alone am responsible.

Personally, I would think the credibility of these sources to now be less than stellar. Clearly, the market can go up, and it can go down - a truism that fertilizer dealers ignored last summer. For some fertilizer prices that haven't dropped yet from the stratosphere, the odds of going up from here are probably slim to none! I, for one, have learned in the past 20 years that there are always odds of a market going both higher and lower from almost any level. But clearly, the higher they get relative to all other commodities, the less likely they can keep rising. The tide has turned for fertilizer producers, and it seems that everyone knows it except the producers themselves.

Some fertilizer manufacturers (Potash) seem to think that they are all powerful, and are keeping prices artificially high by simply shutting down plant capacity. But while they might be a monopoly (or near monopoly) and can set the price for their product, they cannot make people buy their product at that price. Shutting down a factory sounds forboding, but if you have a factory that doesn't produce anything, that is certainly no way to make a profit, either. Farmers don't leave land idle (a fixed cost), and fertilizer plants certainly can't leave a factory idle indefinitely, either, and make money.

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