By ANN HINCH
Assistant Editor

ASHKUM, Ill. — Prices for fertilizer may be up, but that hasn’t deterred demand in the Midwest; in fact, some farmers are asking now to buy their fertilizer for the 2012 growing season.

In Ashkum, Tri Central Co-op General Manager Dave Pratt said growers are making good money from corn and soybeans, and asking if they can lock in delivery prices for dry fertilizer for this fall. This is aided by last year’s earlier harvest, he explained, which has given growers more time to make decisions about what to plant and what inputs they’ll need.

Nutrient prices are higher than for the 2010 growing year, he said, partly because of higher commodity prices farmers are getting. “I think you’re seeing some of that translate into fertilizer costs,” he added.

The worry about costs for fall is also spurred by rising crude oil prices over $100 a barrel, and the expectation it’ll stay up because of political unrest in the Middle East, Pratt said.

“It’s risk management,” said Dr. Harry Vroomen, vice president of Economic Services for The Fertilizer Institute in Washington, D.C., who added this situation isn’t unique to Ashkum right now.

There have always been growers who looked far ahead for growing input costs, he added. Since the record commodity prices of 2008 – and subsequent record fertilizer prices of 2008-09 – the number of wary has increased. With commodity prices as high as they are now, farmers may be expecting another 2008-09 situation this fall. But, thanks to current futures prices for corn, soybeans, wheat and cotton, he believes they can make a profit even with higher input costs. Nationwide, Vroomen said fertilizer costs went up 20 percent in the year from February 2010 to last month; at the same time, however, the average price growers received for their corn went up a whopping 59 percent. Prices also escalated for the other three principal crops.

“That tells me that (nutrient) application rates should be higher this year,” he explained, adding in the United States, corn uses about half of all fertilizer. (Cotton, which will likely also be up in planting, only uses about 5 percent.)
In December 2010, Vroomen told corn growers in St. Louis that domestic inventories of phosphorus and potash were tight the previous month. Last week, he said since then, those supplies have loosened a little and inventories have been building in anticipation of spring delivery. “This is turning out to be a high-cost year,” agreed Dr. Bruce Erickson, director of Cropping Systems Management for Purdue University Agricultural Economics, “but we have grain prices that are even higher.”

One of the grower’s biggest costs in the last few years has been fertilizer, next to land itself, according to Erickson, who authored this year’s Purdue Crop Cost & Return Guide with fellow ag economists Craig Dobbins and W. Alan Miller, Bob Nielsen and Tony Vyn of the Department of Agronomy and Bill Johnson and Kiersten Wise of the Department of Botany and Plant Pathology.

Dr. Chad Hart, grain markets specialist and extension economist at Iowa State University, recently pointed out fertilizer prices are not as high as two years ago. For example, a ton of nitrogen in the Tampa port then ran about $1,200,
but is now around $800.

He acknowledged this is still high compared to last fall’s pricing of up to $300 a ton.

“We’ve got a pretty good cushion right now,” he said of prices received for corn and soybeans, versus input costs. “We’ve got good pricing right now … Now we’ve just got to go out and produce that crop.”

Hart added he’s looking ahead to the potential 2012 crop and speculating farmers could have narrower profit margins than this year – such as what happened in 2009 after the bullish market of 2007-08.

What Erickson calls “an interesting series of crop problems” globally is pushing demand for U.S.-produced commodities. These include dry conditions in Argentina, the wheat shortage in Russia and Eastern Europe and bad weather in China, coupled with changing diets around the world demanding more protein, more domestic ethanol production and the low global value of the U.S. Dollar making our exports more attractive now.

Hart added to that list a recent freeze in Mexico that put more demand on U.S. corn syrup, as well as high U.S. demand for corn sweetener and livestock feed.
(Last week’s earthquake and tsunami in Japan has also affected demand, since Japan is the top importer of U.S. corn. See sidebar article for details available at press time.)

When prices for crops are up, Erickson said there’s a tendency to use more fertilizer to keep production high in order to take advantage of higher profit margins. Too, low carryover stocks for corn and soybeans from last year encourage heavy planting this year.

In late February, Erickson pointed to March-July Chicago Board of Trade futures of over $7 for corn as evidence. Usually, the financial incentive is for farmers to stock old crop and sell it several months later. However, he said the premiums being paid for old corn were significant compared to futures prices for new crop delivery in December (more than $1 less, at just over $6). The pattern held for soybeans as well, though not with as wide a gap.

What this tells Erickson is that investors are betting there will be plenty of crop planted this year to make up for what is being sold now.

The USDA will release its annual Prospective Plantings report March 31, and Vroomen has heard farmers intend to plant 9.6 million more acres for all crops than in 2010; for corn alone this is four million more, or 92 million acres.

“It may even be difficult to come up with that many more acres out there,” he said, speculating extra land will likely have to be taken from smaller grains and pasture.

In the Purdue Crop Cost & Return Guide – updated in January – economists have broken down for farmers anticipated inputs and returns in Indiana for low- to high-productivity soils, for continuous and rotated corn, soybeans, wheat and double-crop soybeans. The report may be accessed online for free at: www.agecon.purdue.edu/extension/pubs/id166_2011_Jan_27_2011.pdf

Ag economists with the University of Illinois have posted for free online their Alternative 2011 Corn Production, Consumption, and Price Scenarios report, dated March 2, at http://farmdoc.illinois.edu/marketing/mobr/mobr_1101/mobr_11-01.html