In the last 12 months, fertilizer markets have caused a great deal of financial pain at various points in the supply chain. Fertilizer purchases and prices locked in by retailers (and many producers) at high prices from mid spring through mid fall looked to be good decisions as prices for fertilizer were projected to increase into 2009. Instead the global financial crisis changed much of the outlook for commodities including crops, energy and fertilizer. Lower commodity crop prices and poorer prospects for profitability in 2009 kept many producers out of the fertilizer buying market. Producers, aware of falling fertilizer demand (domestic and global) and import/wholesale prices, were hesitant to buy high priced fertilizer when lower prices might potentially show up at the retail level.
Throughout this past fall and winter retailers have struggled to find buyers and producers have struggled with the decision of when to purchase needed fertilizer. Retail ag dealerships have struggled with when and by how much prices could or should be lowered to encourage farmer purchases yet limit their own losses. Prices have declined for some fertilizer materials while others have remained at relatively high levels. Eventually producers will have to return to purchasing fertilizer and not (in some cases) rely on existing P and K levels in the soil. Will that be yet this spring or later this fall in preparation for the 2010 crop? Better prospects for profitability for 2009 and 2010 in the form of higher commodity prices (if they occur) may move some producers back into the market for purchasing not only needed N for corn production, but P and K that they may have skimped on thus far for 2009 crops.
So what fundamentals will drive fertilizer markets in the next year?
Fertilizer Fundamentals – The Case for Steady/Higher Prices
1.If we experience steady to higher commodity crop prices and reasonable scenarios for profitability, fertilizer purchasing will resume which may put some upward pressure on fertilizer prices again.
2.Balance sheets for farmers in the U.S. are generally strong, especially amongst crop farmers. Strong financial positions will “help grease the purchasing wheels”.
3.Large under-fertilized acreages worldwide signal stronger long term fertilizer demand.
4.Fertilizer manufacturing/mining curtailments over the last several months as a result of slow demand may over-compensate and see supplies unable to keep up with demand when producers return to the market.
Fertilizer Fundamentals – The Case for Steady/Lower Prices
1.Large high priced inventories combined with smaller farmer purchases at the retail level continue to put downward pressure on prices.
2.The potential for lower commodity prices (due to falling demand from the global downturn) and questionable profitability in 2009 may keep many producers from fertilizing at high or even sufficient levels.
3.Deteriorating credit opportunities in many countries around the world may hurt demand further.
4.Lasting demand destruction may occur in some countries/regions due to lack of liquidity or financing and/or utilization of alternative nutrient sources.
5.A stronger U.S. dollar allows for more purchasing power in the U.S. and lower prices for imported fertilizer.
6.Lower transportation costs due to lower energy prices and less demand for transportation worldwide will decrease prices for imported fertilizer.
Fertilizer prices (with the exception of potash) have declined sharply in the last 6 months. According to our retail survey that we conduct by surveying several crop supply outlets in Ohio, the price of NH3 on 3/22/09 averaged $765 per ton. This is a decrease of 37% from 6 months ago ($1212 per ton), but down only 6% from a year ago ($783 per ton). UAN, now priced at $331 per ton, is down 33% from 6 months ago, from a high of $492 per ton. Urea decreased 43% in the last 6 months, falling from $870 to $498 per ton. According to our survey, MAP price declined from $1223 to $683 per ton in the last six months, while DAP price fell from $1218 to $700 per ton. These are decreases of 44% and 43% respectively.
As of 3/22/2009, the price of potash has not followed this trend. According to our survey, the average price of Potash is $880 per ton. This is up 1.8% from 6 months ago when it was averaging $864 per ton.
As of 3/22/2009:
NH3 – $765/ton or $0.47/lb
UAN – $331/ton or $0.59/lb
UAN-Direct to farm – $298/ton or $0.53/lb
Urea – $498/ton or $0.54/lb
MAP – $683/ton or $0.66/lb
DAP – $700/ton or $.67/lb
Potash – $880/ton or $0.73/lb
10-34-0 – $1038/ton
On-Highway Diesel (Midwest) – $2.04 per gallon
There have been and will continue to be painful adjustments as farmers, retail dealers and wholesalers sort out how to navigate the present uncertainties in the fertilizer markets. Eventually higher priced inventories will be sold through retailers and the cycle will begin again. Will all retail crop service companies survive this upside down fertilizer market? If there is some industry consolidation, will producers suffer due to lack of local retail fertilizer dealers? And what will that mean to competition and price of retail fertilizer in the long run? Will producers find profitability in 2009 even with these relatively lower fertilizer prices? Many questions….but not enough evidence yet to draw conclusions. Most experts agree that in these volatile times, spreading out fertilizer purchases to take advantage of some cost averaging may be prudent.