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Anhydrous prices surging again

Jeff Caldwell 10/19/2011 @ 9:00am Multimedia Editor for Agriculture.com and Successful Farming magazine.

Don't look now, but fertilizer prices are surging again.

A recent report from the USDA Agricultural Marketing Service shows prices for anhydrous ammonia in the state of Illinois have jumped $52/ton since early July, with prices now beyond $850/ton in that state. But, the price spike has happened despite a relatively stable marketplace for the main input of the fertilizer, natural gas.

"This has caused the anhydrous ammonia-to-natural gas price ratio to increase dramatically," says University of Illinois Extension ag economist Gary Schnitkey. "These higher ratios indicate that anhydrous ammonia prices have increased relative to natural gas prices. The increase in the ammonia-to-gas ratio occurred roughly at the same time as when commodity prices increased."

Specifically, corn prices are the clear driver of the widening of the ratio between anhydrous and natural gas. Schnitkey says though the ratio has been "spiky" in the last 4 years, higher corn prices send a clear signal to players in the fertilizer marketplace, both on the production and consumption sides.

"These high corn prices could signal shifts in crop production that could change the demand for nitrogen fertilizers," Schnitkey says. "It could also signal profit taking on the part of manufacturing of fertilizers."

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