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- DECEMBER 2, 2010, 4:34 P.M. ET
US Grain Growers Face Rising Fertilizer Costs For Next Season
By Gary Wulf
Of DOW JONES NEWSWIRES
U.S. grain growers will likely see higher prices on fertilizer next season, according to surveys.
A federal survey released late last month shows prices for keyfertilizer components rose sharply since spring. A forecast fromeconomists at Purdue University, also released in November, projectsdouble-digit percentage increases in the variable cost of growing corn,wheat and soybeans next year, with fertilizer the driving force behindthe rise.
"Crop production around the world, and the demand associated withthat, still seems to be the primary driver" behind higher fertilizerprices, Purdue specialist Bruce Erickson, who contributed to the report,said.
Higher fertilizer costs are expected to cut into the margins offarmers. Yet the increase in prices--which still remain well belowrecord highs set in 2008--come as crop prices strengthen. U.S. cornfutures are up 38% from a year ago, while soybean futures have climbed22%. Global supplies for both crops and wheat remain a concern.
Shares of fertilizer companies Mosaic Co. (MOS) and CF IndustriesHoldings Inc. (CF) hit 52-week highs in the last month on strong demandand the prospect of rising prices for fertilizer. The strength fueled afailed, $38.6 billion bid by BHP Billiton Ltd. (BHP) for Potash Corp. ofSaskatchewan (POT), the world's biggest producer of the crop nutrientpotash, earlier this year.
The recent U.S. Department of Agriculture survey of central Corn Beltfertilizer dealers shows that prices for ammonia--a leading source ofnitrogen, which is the single most-important plant nutrient--have risen41.5% since April to an average of $736 a ton. During the same period,market prices for potash climbed 5% to $526 a ton and phosphate pricesrose 31% to $661 a ton.
Cash prices have been pushed up during a recent run on fertilizer bygrowers anxious to lock up 2011 supplies, at a time when wholesalershave depleted inventories. Each fall, corn and soybean growers face thedaunting task of handicapping fertilizer markets to decide whether tobuy and apply their farms' needs in the fall, or wait until spring andpurchase on the spot market.
"Prices for fall-applied fertilizers continued to move higher into Thanksgiving," Farm Futures analyst Bryce Knorr said.
He said the firm's spring forecast continues to put prices at or abovelevels farmers paid this fall, with the potential for sharply higherfertilizer costs.
Knorr said nitrogen and phosphate prices could easily rise anadditional $50 to $100 a ton by spring, but the greatest volatility maycome in potash. Prices in parts of the Midwest remain around $515 a ton,but are likely to rise to $735 a ton by spring, with further increasescoming if a rally in corn prices increases demand, he added.
A major factor behind the rising prices for fertilizer is globaldemand. China, one of the world's leading fertilizer producers, hasimposed 110% export tariffs on urea and phosphate fertilizers throughthe end of the year, in an attempt to preserve extra inventories fordomestic crop production, in 2011.
"Fertilizer is more and more a world market now," Erickson said.
U.S. farmers spent $44 billion to raise their crops in 2010, withabout 41% going to fertilizer. USDA estimates average per-acrefertilizer expenses for 2010 at $124.26 for corn, $57.32 for wheat and$22.46 for soybeans.
-By Gary Wulf, Dow Jones Newswires; +1-402-889-2732; Gary.Wulf@dowjones.com
(Ian Berry in Chicago contributed to this report.)
https://online.wsj.com/article/BT-CO-20101202-715151.html