Wholesale Fertilizer Prices Fall

“Up until very recently, fertilizer prices were astronomical at both the wholesale and retail level,” said AFBF senior economist Terry Francl. “Fertilizer producers were clearly reacting to record commodity prices, and companies priced their products accordingly.”

Now that prices for corn, soybeans, and other commodities have declined 50% or more from summer peaks, wholesale prices for fertilizer are dropping as well, but retail prices have yet to fall. Francl said the wholesale fertilizer price drop began about two months ago, generally after the time farmers applied fall fertilizer to their crops.

“The reasons for the decline involve much more than just crop prices. Natural gas prices have declined from more than $11 per million BTUs (1,000 cubic feet) to around $6 per million BTUs. Natural gas is the primary input utilized to manufacture anhydrous ammonia and typically accounts for 80% to 90% of all input costs,” Francl explained in AFBF’s December Market Update report.

“Anhydrous ammonia in turn is the basic feedstock for nearly all the other nitrogen fertilizers. So the cost of production of the entire nitrogen complex has waned considerably. There are similar declines in phosphate production and lower sulfur and phosphate rock prices.”

Potash prices appear to be retreating much slower, if at all, because more than 90% of the potash used in this country is imported, mostly from Canada but also from some European and former Soviet Union countries. Potash prices are therefore more affected by changes in the value of the dollar, which has declined recently, meaning that it makes imports more expensive.

Francl said fertilizer dealers with large, high-priced inventories could be in a difficult position this spring due to indications by farmers that they plan to plant less fertilizer-intensive crops, such as corn and cotton and plant more soybeans which don’t use nitrogen at all, and as legumes actually add nitrogen to the ground.

To compete, fertilizer dealers will have to “cost average their prices down” by averaging their current high priced inventories with lower-priced future inventories, Francl said.

“Farmers would be well-advised to hold off their spring purchases for as long as possible. The inherent danger in such a strategy is that a spring rush may cause supply bottlenecks. However, nitrogen products can be applied to row crops in the form of side dressing later in the spring,” Francl said.