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Fertilizer prices will stay high at planting

By DOUG SCHMITZ
Iowa Correspondent

AMES, Iowa — While U.S. farmers are still recovering from sticker shock on last year’s skyrocketing fertilizer prices, Iowa State agronomists are forecasting the higher prices would likely remain for the 2009 planting season.

“Dealers and farmers have a huge challenge in front of them as we work to get these high-priced fertilizers out of inventory without breaking everyone’s budget,” said Clarke McGrath, partner program manager for Iowa State University’s Corn and Soybean Initiative.
“Fluctuating crop prices aren’t helping matters a lot. We are used to the ups and downs of the commodity markets, but the tremendous price increases in the fertilizer market are unprecedented, and the industry as a whole has been challenged to recover and adapt to this,” he said.

While world supply and demand issues were driving NH3 (ammonia) to the $1,000 per-ton mark or higher in many regions, McGrath told Farm World last fall that potash and phosphate prices were at record highs, with projected prices reported to be more than $1,000 per ton for phosphates (DAP, MAP) and more than $800 per ton for potash.

“Potash is still quite high, as only a few producers worldwide drive that market,” he said.

”I’m guessing they don’t want to increase production enough to drive down prices, and since most fertilizer warehouses are full anyway, there isn’t a lot of room to put more production.”
But even as worldwide wholesale prices for N and P have now dropped substantially, McGrath said it would take some time for the lower wholesale prices to work through dealerships and be reflected on price sheets for customers.

“Dealers are sitting on a lot of high-priced inventory, as they were buying as the market rose quickly; they were trying to protect their customers from even higher prices,” he said.

As the market crashed surprisingly fast, McGrath said that same inventory is currently hundreds of dollars over current market value, meaning potentially large losses for dealers.

“It is a tough time for both dealers and growers, and we’ll all need to work together to find a way to get the high-priced inventory out of warehouses without hanging all of the potential losses on one side or the other,” he said. ”I guess if I knew how to do that equitably, I would still be in the fertilizer business, but I don’t see an easy answer.”

Like McGrath, Jim Fawcett, ISU extension agronomist in Iowa City, said at this point no one knows for sure what prices will do this spring.

“Global prices for nitrogen and phosphorus have dropped dramatically since they peaked this summer, but most local producers will not see those lower prices because dealers have supplies bought at higher prices, and that has to be sold before lower-priced fertilizer is bought,” he said.“Because of the higher prices, as well as the late harvest, there was less fertilizer applied last fall.”

Fawcett said one of the ways farmers could save money, however, is by minimizing N losses.

“Nitrogen losses are less when the N is applied closer to the time the corn uses it (at planting or at sidedress),” he said. “Also, only apply P and K for this year’s crop, rather than applying for two crops, would make sense this year if prices do drop later in the year.

“It has never been recommended to apply additional P and K to soils testing high or very high already. I would not recommend cutting P and K rates on soils testing low or very low, but on optimum testing soils rates could be cut for a year or two without much risk, as long as rates are increased again in the future when hopefully prices moderate.”

As for switching N types, Fawcett said anhydrous is usually the least expensive.

“Farmers need to remember that different sources of nitrogen have different N analyses,” he said.

“Anhydrous is about 82 percent N, urea is 45 percent N and UAN solution is 28 percent.”

By late spring or fall, he said farmers may see lower N prices, while phosphorus may be lower by this fall. But potassium may remain high for a while, he said.

Even though P has dropped, and as expensive product is moved out of the system, McGrath said replacement product would hopefully be lower-priced. “Again, market fluctuations can change this pretty quickly,” he said. ”And the high-priced inventory isn’t moving very fast. Potash is still looking pretty high-priced, with not a lot of signs of much softening.”

McGrath said the bottom line is to work closely with suppliers, fertilize acres that need P and K and talk in-depth about what to do with acres that are testing optimum or higher.

“Keep in mind that the last thing we want to do is to have fertility levels be a limiting factor in production, so be sure tests are current and put P and K where it is needed,” he added. ”Precision sampling and variable rate fertilizer applications are a tremendous way to manage fertility, especially in volatile times like these.”

1/14/2009