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Fertilizer Management has become more of a year-round responsibility than it used to be, says Gayle Melcher, manager of Clarinda Co-op Company, Clarinda, IA.
“When field conditions allow for it, you've got to go,” says Melcher, whose co-op will spread much of its fertilizer throughout the winter months, as long as there's no snow cover. “This year, we worked off mostly full tanks and sheds,” he says, “until we ran into problems replenishing supply during crunch time.”
Wet weather across corn-growing regions caused fertilizer supply and demand to whipsaw this spring, as long periods of waiting for suitable field conditions turned into a virtual rural rush hour, when farmers and commercial applicators tried to make up for lost time. “In March we had lousy weather,” Melcher explains. “So all our fertilizer applications got pushed into April, and that put a crunch to the season. We were usually able to get product, but not always in the timeliest fashion. Some days we ran short.”
Timely field applications aren't the industry's only worry, however. Nowadays, fertilizer markets are behaving a lot like grain commodities. “Orders are firm and considered just like contracts,” says Joe Dillier, plant food market manager, Growmark Inc. As a result, he says, both farmers and suppliers need to monitor prices closely and react quickly when they rise or fall.
Problematic pricing
If caught off guard, the cost to replace fertilizer inventory can be expensive for ag retailers, particularly if they sell more fertilizer than they have on hand and prices rise significantly by the time they reorder, Dillier says. The opposite scenario also can be costly, however, says Sebastian Braum, West Coast agronomist for Yara North America. “A lot of dealers got burned last year when they ordered too much product [at high prices],” he points out. “It was the first time in 20 years that nitrogen prices dropped in the spring and didn't go up.”
Both supply and demand conditions were dramatically different this year, Dillier says. “There was a pretty big run-up in price for both nitrogen and phosphate this spring,” he says. “That should ease up somewhat as we head towards fall. Prices should drop somewhat from what they were then. However, I don't expect prices to drop to what we saw last summer. Prices will be established at higher lows than what we've seen in the past.”
For example, phosphate prices dropped below $230/short ton, U.S. Gulf basis, last summer, Dillier points out. “Phosphate prices will probably come down from this spring's prices, but they'll still be about $100/ton above last summer's low,” he says.
This fall's fertilizer supply situation will likely be better than this spring's supply, which was tight, especially for nitrogen, Braum agrees. “I don't anticipate a big slump in fertilizer use, and the expectation is that suppliers should have plenty of nitrogen, phosphorus and potassium available,” he says.
Fertilizer prices flatten
By the fall, fertilizer supplies will have adjusted to the recent large increase in corn acreage, which greatly increased fertilizer demand, says Michael Swanson, Wells Fargo & Company economist. “Higher fertilizer prices this spring were not a result of a constraint in the supply of natural gas [the main ingredient in fertilizer production],” he says. “Rather, the spring price spike was an availability and transportation issue of finished product that resulted from a big increase in corn acres. A year ago, the fertilizer industry didn't anticipate a 90.5-million-acre corn crop.”
Braum agrees. “People didn't line up enough imports this spring,” he says. “No one was expecting that much corn to be planted.”
Because most fertilizer is produced from natural gas, Swanson anticipates fertilizer prices to be tied to natural gas use. “We've had fairly stagnant natural gas usage in the U.S. — except for electrical generation — for some time,” he says. “Industrial, commercial and residential usage has all been flat.”
For now, the market doesn't indicate a lot of increase in natural gas prices; plus, there's been some upward movement in domestic production, Swanson says. He cites those reasons as evidence that natural gas prices, and thus fertilizer prices, will remain flat or slightly lower than the prices that prevailed this spring.
“If the natural gas feedstock price was near the $12/million Btu level, then I would be much more bullish on the price of fertilizer, but it's not,” Swanson says. As of May 1, natural gas futures were trading at $7.72/million Btus.
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