Fertilizer prices flatten

May 9, 2007 1:47 PM, By John Pocock

Growers should see more supplies of fertilizer and better prices this fall than this spring.

Why? 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]," says Swanson. "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."

Sebastian Braum, West Coast agronomist for Yara North America, agrees. "People didn’t line up enough imports this spring," he says. "No one was expecting that much corn to be planted."

Since most fertilizer is produced from natural gas, Swanson anticipates fertilizer prices to be tied to natural gas use. "We’ve had fairly stagnate 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 upside to natural gas prices - plus there’s been some upward movement in domestic production, says Swanson. He cites those reasons for 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 per million Btu level, then I would be much more bullish on the price of fertilizer," says Swanson, "but it’s not." As of May 1, natural gas futures were trading at $7.72 per million British thermal units (Btu).

Price drop approaching?

N prices may come down slightly this fall before going back up again for winter, predicts Braum. "So, it might be a smart decision to make fall anhydrous applications in areas where you’re able to do so [responsibly]," he says. "New capacity is being built and coming online for N, but it probably won’t be available before winter or beyond."

Potash and phosphate prices will likely weaken more than N this fall, but not a lot more, adds Braum. "There’s not any new capacity coming online for potash," he says. "The same is true for phosphate. And demand will likely stay high, especially with the increased corn acreage and ethanol situation."