There is no doubt that production costs for the major crops have increased over the last couple of years, but prices for fertilizers are declining and that could have a big impact on budgets for the 2014 crops. The recent news about cracks in the potash market has contributed to the price decline but phosphate and nitrogen prices are also falling.

Fertilizer prices are decliningIn general fertilizer prices are down about 10 percent to 20 percent from levels recorded last year at this time. These are retail prices, based on data collected by DTN. The price for urea in mid-August is $499 per ton, down more than $100 per ton compared to last August. The price for anhydrous ammonia has plunged by more than $100 per ton in just the last 2 months and now stands at $700 per ton. Prices for anhydrous peaked at $873 per ton last December.

DAP prices are reported to be $570 per ton as of mid-August compared to $632 per ton a year ago. Two years ago, during the fall application season in 2011 DAP prices were above $700 per ton. DAP prices have been below year earlier levels now for 20 consecutive months.

In the last few weeks Russia’s Uralkali OAO broke away from the Belarusian Potash Company and this division is expected to push potash prices down. The impact, at least so far, has been relatively modest. But potash prices are down 11 percent from year ago levels, falling to $555 per ton in mid-August. As is the case for DAP, potash prices have been steadily declining since the spring of 2012.

Fertilizer is a major factor in the costs of producing major crops, especially corn. According to USDA budgets, the cost of fertilizer is nearly half of the total operating costs. As a result, a 10 percent to 20 percent decline in fertilizer costs can have a big impact. The operating costs associated with planting an acre of corn could drop by $20 to $30 per acre for 2014, which partially offsets the impact of expected lower corn prices. In contrast, lower fertilizer prices cut per acre costs of soybean by only about $2 to $3 per acre.

With relatively low natural gas prices, U.S. fertilizer production has been rising and even more production capacity is under construction. The combination of increased fertilizer production and the need for lower corn acreage implies that fertilizer prices may remain weak. Things can always change, but it looks like the situation in the fertilizer market will dampen production expenses impacting both crop budgets and overall net cash farm income.