News PRICE IS RIGHT: Waiting Game Begins As Wholesale Fertilizer Prices Fall

PRICE IS RIGHT: Waiting Game Begins As Wholesale Fertilizer Prices Fall

PRICE IS RIGHT: Waiting Game Begins As Wholesale Fertilizer Prices Fall
January 26, 2009 |

Thomas Kirkland calls it a “waiting game.”
Brian Glenn says it’s more like “a game of chicken.”No matter what you call it, the first decline in fertilizer prices after six straight years of increases is welcome news.But Alabama farmers aren’t exactly jumping for joy just yet.”We need it, but my gut reaction is most of the dealers are sitting on old inventory that they had to pay a big price for,” said Glenn. “So, we’re kind of playing a game of chicken with the local supplier to see who blinks first, to see if he can wait longer than the farmer waits to put it out. I don’t blame the suppliers a bit — they paid high prices for it, but the price has gone down. Sooner or later, somebody is going to have to eat that.”A report by the American Farm Bureau Federation showed that as prices for corn, soybeans and other commodities declined 50 percent or more from summer peaks, wholesale prices for fertilizer began dropping as well.Retail prices, on the other hand, have shown little movement — or at least not as much as farmers want.That’s why, Kirkland says, many farmers are holding off on their fertilizer purchases in hopes of seeing lower prices.”If everything holds true to form, which it might not, I’m hoping it will come down more because corn is off 30 percent from what we contracted last August,” said Kirkland, a Dale County row crop farmer. “If nitrogen doesn’t come down, I don’t know what we’re going to do.”While the AFBF report did not have pricing information for the Southeastern states, it showed wholesale prices for anhydrous ammonia in the Corn Belt down from the $1,000 per-ton-plus range to the $500 range. It also reported that urea had dropped from the mid-$800 range to the mid-$300 range. Diammonium Phosphate (DAP) was down 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.In the meantime, commodity prices continue to fall. AFBF Economist Terry Francl notes that corn prices have recently traded in the low $3 range and soybeans around $8. However, the fertilizer industry appeared fairly oblivious to this change until the past couple of months.The reasons for the decline are more than just falling commodity prices — there’s also the big drop in fuel prices. Most notable is a drop in the price of natural gas from $11 per 1,000 cubic feet to just $6. Natural gas is used to manufacture anhydrous ammonia, and, in turn, is the basic ingredient in nearly all other nitrogen fertilizers.Potash prices appear to be retreating much more slowly, 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. Therefore, potash prices are more affected by changes in the value of the dollar, which has declined recently, meaning that it makes imports more expensive.That’s why Dan Rhyne, who operates Benton Farms with father Hoffman Rhyne Sr., brother Hoffman and son Daniel, says chicken litter has taken the place of potash.”Potash has priced itself off this farm — it’s just too high for what we’re growing,” says Rhyne, president of the Lowndes County Farmers Federation. “We’ll put out a ton of chicken litter to keep our potash, potassium and minor nutrients. We pre-bought some chicken litter this fall and are keeping it under plastic. As soon as we get into the spring, we’ll be putting out some chicken litter. That’s our plan to get through this mess.”The Rhynes own two tanker trucks and buy their liquid nitrogen in bulk from Alabama Farmers Cooperative in Selma. When Dan checked with AFC on Dec. 29, 28 percent liquid nitrogen was selling for $325.70 per ton. That was $105 less than just 26 days earlier and $155 less than its record high last August, but still only $27 less than Jan. 25, 2008, when farmers neared the planting season amid record input costs.With grain prices high and fuel and fertilizer prices even higher, the Rhynes last year planted 850 acres of corn, only 370 of which were irrigated. They also planted 575 acres of peanuts and 1,150 acres of soybeans. This year, Dan Rhyne says the planting decisions are being dictated by input costs, not commodity prices.”In normal years, we’ve looked at our commodity prices first and made crop decisions, but now, the shoe’s on the other foot — the inputs are determining what you’re going to plant,” said Dan. “The price of fertilizer is going to determine how much corn you are going to put out there.”Max Runge, an agriculture economist with the Alabama Cooperative Extension System, says he’s already seeing evidence of how fertilizer prices are affecting planting decisions.”With high fertilizer costs, I was anticipating a lot more soybeans being planted, and I was afraid the price would get pushed down,” said Runge. “But now, there should be more balance in planting, especially corn, I think we’ll lose more cotton acreage because the cotton prices are so low; and I think soybeans and corn will benefit from that.”One of the old sayings is ‘high prices cures high prices, and low prices cures low prices.’ I guess that’s true,” Runge added. “One caveat is that there could be a supply problem. In the spring, if all of the farmers all of a sudden decide they want their fertilizer and they want it now, we could see some supply problems then. Then it becomes supply-and-demand for sure, and we’ll see prices push back up. I guess the bottom line is producers need to keep a close eye on this and not wait until the last minute.”In the meantime, rumors abound of barges laden with fertilizer lined up on the Mississippi River, waiting for the price — and demand — to increase.If everybody does decide to buy at the same time, Glenn fears the whole system could collapse. “The suppliers, the co-ops, the dealers have only so much equipment to load it, to handle it,” Glenn said. “And if everybody waits to the last minute, the pressure on the infrastructure is going to be so much greater, the demand for spreading — whether the producer has his own equipment or the co-ops are doing it — they are going to have to cover a lot of ground in a hurry.””I think it will be a waiting game between the farmers and the fertilizer people,” said Kirkland. “The problem is that all of our suppliers have got their inventories to the bare bones, and they don’t want to stick out their neck and go ahead and buy fertilizer at the price it is now because they figure the price may drop after they get it in the warehouse. We’ll just have to wait and see. Where that will take us I don’t know.”

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