Farmers may avoid volatility in fertilizer prices


Issue Date: February 13, 2013
By Ching Lee

Fertilizer prices should remain tempered this spring, giving farmers a break on a key input as they look ahead to planting in the coming months.

The nitrogen market is already showing signs of weakness, with prices dropping the last couple of months, said Bob Brown, president and CEO of CALAMCO, a grower-owned fertilizer cooperative in Stockton. He pointed to sluggish industrial demand and excess product on the market as two main factors driving down prices.

"My thought is (prices) are going to be either steady to maybe slightly down from where they are right now," Brown said.

But he noted that fertilizer pricing can also be "a mixed bag this spring," with the market unsure of "where it wants to go."

Looking to take advantage of another year of favorable prices, U.S. farmers are expected to plant a record 97.6 million acres of corn this year, according to a report released last month by the Rabobank Food and Agribusiness Research and Advisory group. That's compared to 96.4 million acres in 2012, according to the U.S. Department of Agriculture.

"If corn prices are high, people are going to want to try and maximize yields," Brown said. "It's looking like there should be a strong season in the Midwest, which means that there's going to be some pressure to keep the (fertilizer) prices up there."

In its report, Rabobank said it expects global fertilizer use will intensify during the second quarter of 2013 as planting in the Northern Hemisphere gets under way. And while economic incentives for farmers support "solid fertilizer demand," the report said "new capacity in the case of nitrogen and elevated inventories for phosphates and potash are counteracting increasing demand."

Last year, fertilizer prices began to spike in March, as warm weather in the Corn Belt allowed farmers to start planting earlier. Robust corn prices also led to more acreage and increased fertilizer consumption. Corn, wheat and soybeans are the top three fertilizer-utilizing U.S. crops, according to the Washington, D.C.-based Fertilizer Institute.

Because the 2012 drought across the Midwest decimated crops, some observers speculate whether a lack of funds would prevent some farmers from increasing their plantings this year. But Brown said it appears U.S. farmers "collected their crop insurance and are looking to plant a lot of acres again."

There is also some speculation that following last year's drought, carryover nutrients might be available to crops this spring, allowing farmers to use less fertilizer. But Brown said that may depend on the region of the country, as some areas may have more carryover than others.

Case van Steyn, a Sacramento County dairy farmer who also chairs the board of CALAMCO, said nutrient carryover may affect retail sales of fertilizer in some regions, but it probably would not have much impact on supplies in California, noting that nitrogen fertilizer prices are tied to ammonia prices on the world market.

"California fertilizer prices are reflective of national trends and will be driven by international demand and weather conditions," said Renee Pinel, president and CEO of the Western Plant Health Association in Sacramento."California is an importer of fertilizers and therefore we are price takers and not price setters."

In California, demand for fertilizer starts in April, as Sacramento Valley rice farmers begin to ramp up for their planting season. Demand then moves south to the San Joaquin Valley, where cotton is grown and where dairy farmers are planting corn, Brown said.

He said that unlike farmers in other parts of the country, California farmers do not get to prepay or lock in prices for their fertilizer and must buy it off the market when they need it.

Van Steyn said he does not expect much volatility in the fertilizer market this spring. As such, he said he won't be making any purchases until sometime in April or May when he plants corn for feed.

"Prices are going to be stable from what we can see," he said. "They've come down from last year. They're not the highest and they're not the lowest. Nobody is expecting a big change either way."

Even if a jump in price does occur, he said, the cost of fertilizer will likely not influence farmers to change their plans significantly.

"Commodity prices are significantly above normal, so they're still going to be fine," van Steyn said. "Their No. 1 concern is getting everything planted."

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.