Like any other farm input cost for crop production, fertilizer prices reflect what the market will bear, says Bruce Erickson, American Society of Agronomy and an adjunct assistant agronomy professor at Purdue University.
“When the value of an acre of corn or an acre of soybeans is as high as it is now, everyone hopes to get their share in that high value,” he says. “So, generally, we’re seeing input prices rise as the demand for row-crop acres increases worldwide.”
Although subject to change, crop-input variable costs will likely jump substantially for 2012 compared to last season’s costs, according to Purdue economists. “The variable costs in our budgets include fertilizer, seed, machinery, fuel and pesticides, and all of those have been trending upward,” Erickson says. “Fertilizer is the largest single variable cost for corn and soybeans, second overall only to land payments or rent, and we’re estimating that the typical Indiana farmer will pay 10 to15% more for fertilizer in 2012 than in 2011. We base these estimates on Indiana, but they are representative for much of the eastern Corn Belt.”
What farmers and economists used to think were large price swings in fertilizers a decade ago may go unnoticed today, Erickson notes. “The big price spike came in 2008, when fertilizer prices went up 50% from the year before, which was unprecedented,” he says. “Fertilizer prices can sometimes increase quickly, but they are typically slower to come down than to go up.”
Because fertilizer prices don’t follow benchmark trading on an open exchange, tracking fertilizer price fluctuations can be a bit mysterious, Erickson notes. He says that in general, though, fertilizer prices are influenced largely by energy prices and the demand related to crop prices.
“Much of the cost for producing fertilizer is in energy,” he says. “Natural gas is the main feedstock used for producing ammonia, a concentrated source of nitrogen [N] and a raw ingredient for other nitrogen-containing fertilizers. Both phosphorus [P] and potassium [K] fertilizers are mining dependent, which is also heavily energy dependent, and fertilizer is also a bulky material that is costly to transport.”
Fluctuating global economies also can have an impact on fertilizer prices, however. As a result, some people have been making comparisons between the global financial problems occurring now and the financial problems that occurred in the fall of 2008, which led to lower fertilizer prices in 2009. Yet the current financial conditions aren’t quite the same as they were then, Erickson says.
“One big difference, especially related to fertilizer, is that the price of natural gas is much lower than three years ago,” although higher than last season’s prices, he points out.
Nutrient supply crunch?
Expect the unexpected in a market that is tied to commodities, says Dan Frick, chief operating officer, Frick Services, Wawaka, IN. “In the 2008/2009 scenario, there were issues over credit availability for foreign fertilizer buyers, and foreign demand for fertilizer dropped off all at once,” Frick says. “We also saw the bottom drop out of grain prices at that time, but right now, we’re not seeing grain prices drop.”
With global demand for grain as strong as it is currently, that demand will continue to support and underpin the market for fertilizer, Frick says. When in high demand, supplies for any product tend to become squeezed, however.
“Fertilizer supplies will be tight, but I don’t expect supplies to be impossibly tight,” he says. “I think there will be product available when people need to have it.”
Erickson agrees. “The information that we have right now shows that fertilizer inventories are somewhat lower now compared to recent years, but not low enough to be alarming,” he says.