Wholesale U.S. Fertilizer Prices Beginning to Fall
WASHINGTON, D.C., Dec. 19, 2008 – After increasing for six consecutive years, U.S. fertilizer prices are finally beginning to fall at the wholesale level, according to a report by the American Farm Bureau Federation.
“Up until very recently, fertilizer prices were astronomical at both the wholesale and retail level,” said AFBF senior economist Terry Francl. “Fertilizer producers were clearly reacting to record commodity prices, and companies priced their products accordingly.”
Now that prices for corn, soybeans and other commodities have declined 50 percent or more from summer peaks, wholesale prices for fertilizer are dropping as well, but retail prices have yet to fall. Francl said the wholesale fertilizer price drop began about two months ago, generally after the time farmers applied fall fertilizer to their crops.
Wholesale prices for anhydrous ammonia in the Corn Belt have declined from the $1,000 per-ton-plus range to the $500 range. Urea has dropped from the mid-$800 range to the mid-$300 range. Diammonium Phosphate (DAP) has declined from $1,100 to $600 per ton. The decline in potash prices has been less notable, dropping from a little over $900 per ton to slightly over $800.
“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. Natural gas is the primary input utilized to manufacture anhydrous ammonia and typically accounts for 80 percent to 90 percent of all input costs,” Francl explained in AFBF’s December Market Update 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. There are similar declines in phosphate production and lower sulfur and phosphate rock prices.”
Potash prices appear to be retreating much slower, if at all, because more than 90 percent 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.
Francl said 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, and as legumes actually add nitrogen to the ground.
To compete, fertilizer dealers will have to “cost average their prices down” by averaging their current high priced inventories with lower-priced future inventories, Francl said.
“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 said.
AFBF’s December Market Update can be accessed here: http://www.fb.org/newsroom/nr/nr2008/12-18-08/DEC_08_Market_Update.pdf.
|Contacts:|| Tracy Taylor Grondine