Farmers Delaying Fertilizer Decisions
It’s no secret that a lot of the 2015 crop is being held off the market in hopes of higher prices, and it’s hurting fertilizer consumption.
“Weather is cooperating and farmers could be out there, but they’re holding back because they don’t think their budgets can allow as much fertilizer as they need,” said David Asbridge, NPK Fertilizer Advisory Service senior economist and president.
Illinois farmer Doug Martin estimates that most of the farmers in his area stored at least 80% of their harvested crop this year, which has most of them taking a hard look at their budgets and where they can cut costs.
“We’re waiting to see if the price rallies,” Martin said. “Fertilizer is one of the few areas that we can have a little bit of control over as far as what we can apply.”
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2016 Prices and Predictions
Purdue University is predicting fertilizer will cost farmers about $137 per acre of corn next year, which means corn fertilizer prices have more than doubled since 2005, when fertilizer averaged about $66 per acre for corn. Soybean fertilizer has also seen prices rise 207% since 2005. In 2016, fertilizer is forecast to be about $54 per acre for soybeans. According to Chris Hurt, Purdue University crop economist, fertilizer is the second highest input cost for farmers.
Fertilizer prices have been decreasing by $50-$70 per ton at the producer/wholesaler level, but that is not a promise that consumer prices will reflect those drops, warns Asbridge.
“We do think that prices right now are pretty much at a bottom,” said Asbridge. “There’s not really going to be an incentive for prices to go up very much, but what it should come down to is if farmers will carry income over or not.”
“With the lower prices we’ve been seeing over the last month or so, it’s real good from a buyer’s standpoint,” said Asbridge. “After December and January, prices will kick back up again.”
Today’s fertilizer pricing issue isn’t due to a shortage of essential nutrients potash, nitrogen (N), and phosphorus (P). In fact, Asbridge believes there is an “oversupply” of all three. Morningstar senior equity analyst Jeff Stafford agrees that by the end of the decade, the world will see potash capacity grow faster than the demand, putting pressure on prices. New mines will likely be added in areas of the world like Canada and Russia. Long-term, P is anticipated to see inflation-like growth in price as demand grows faster than supply, but currently the supply is plentiful.
There will be a problem if farmers don’t start giving their retailers an idea of what they will want in the spring. Typically, farmers lock in their fertilizer prices in December and January, but this year farmers may wait to sell their grain even later and then order fertilizer.
“If everybody waits until March 16 to buy fertilizer, it’s going to be a problem,” Asbridge said. “Retailers aren’t going to speculate. They’re not willing to buy a bunch, so they’re taking their cues from whatever the farmers tell them.”
If farmers don’t start indicating what they’ll be in need of in the spring, import needs will go down and there’s a possibility that the fertilizer supply won’t be in the right parts of the country when they’re needed. In the past, these instances have caused influential price hikes.
The Future of N in the U.S.
In the coming six months to one year, new U.S.-based N plants will be up and running, which means the U.S. will hardly have to import any of it. This isn’t necessarily an indicator that fertilizer prices will go down, but it will have affect fertilizer transportation costs.
“With our natural gas prices at where they are now, we will have some of the lowest cost production of nitrogen fertilizers in the world,” Asbridge said. “We won’t be fully self-sufficient—but close.”
It’s important to remember that things can change quickly. China was formerly the world’s largest importer of N and P, but within only 10 to 15 years the country has become the largest producer and exporter of nitrogen and a large producer and exporter of P.
“The U.S. is a very attractive market all over the world to build N plants,” said Kathy Mathers, vice president of public affairs for The Fertilizer Institute. “The majority of these plants are located much closer to the farm gate than before.”
Having quality N on U.S. soil will significantly cut back on fertilizer transportation costs and importing fees. According to Mathers, it is unclear how much of an influence that will have on U.S. retail prices, since prices are still based on the world market.
As of now, Martin will be applying less fertilizer than past years on his fields. Ideally, he would replace what he took off with a great crop in 2015, but budget issues will dictate his final decision. Asbridge knows, too, that farmers are considering going without some fertilizer purchases if their soils have sufficient levels of P and potassium.
“I would call it a typical reaction to lower commodity prices,” said Mathers. “Using less is something that farmers can get away with, but it’s short-term gain, long-term pain.”
Mathers advises farmers that at some point, soil levels will become depleted. An International Plant Nutrition Institute evaluation of 4.4 million North American soil samples found that the most consistent P declines were seen in the Corn Belt, which saw a decline of 6 parts per million (ppm) to a median level of 22 in 2010. A high amount of the soil samples taken from the Corn Belt region saw critical P levels and call for annual P applications to maintain yields.
“If you’re thinking about cutting back, you should be doing some pretty rigorous soil testing to be sure you’re not putting your yields at risk,” said Mathers.