By Gary Hergert, Extension Soils Specialist
University of Nebraska



The past two years have seen major changes in crop production costs, especially fertilizer. What happened and what's projected for 2009? That depends on the world market. Fertilizer is truly an international commodity, so what happens in the Middle East, India, China and in former Soviet Union Republics like the Ukraine (Yuzhny) influences local prices.



Nitrogen



Nitrogen prices tripled compared to two years ago in September, but have dropped just like the stock market since then.



World demand for fertilizer rose 14 percent in the past few years (primarily from South America, China and India) which drove up prices. With increases in U.S. ethanol production, corn acreage and nitrogen demand increased - 45 percent of all N fertilizer is used for corn. When the financial crisis spread around the world in September, it also affected demand for fertilizer, causing the huge price drop shown in Figure 1. These are world prices. Local prices will be at least 20-percent higher to reflect transportation and dealer mark up.



In the U.S., ammonia for fertilizer accounts for only about 2 percent of total uses which are primarily industrial. Historically, the price of ammonia is strongly correlated with natural gas prices because 85 percent-90 percent of the production cost of ammonia is natural gas. Industrial ammonia is used to produce nylons, acrylonitrile for fibers and plastics, isocyanates for polyurethanes, hydrazine and explosives. Industrial ammonia use is reflecting steep declines because of decreased use tied to the U.S. housing and construction slump and automobile, pulp and paper industries decreased use.



Demand for ethanol has declined with the drastically decreased crude oil and gas prices. Late harvest, high prices and wet soils limited corn belt nitrogen application this fall to about 50 percent of normal. All of these factors have led to excess supply (industrial and fertilizer) in the U.S. and the world and are reflected in world prices.



So, why haven't you seen a decline in prices at your local supplier?



The problem is that dealers have high-priced inventory in bins and tanks they are waiting to sell. Many bought before peak prices last summer, but now will have to see if they can "cost average" to help bring down costs, knowing there is cheaper product on the market. Dealers cannot sell those products below their cost or they will not be in business even though current prices on the world market are much less. Many are not pricing until January. Barge traffic up the Mississippi is closed for winter, storage is full, and there are tanker ships sitting off Tampa full of ammonia that is being offered for less than $200/T, but there are no buyers and no place to move it.



Phosphorus



Phosphate prices quadrupled since two years ago before dropping again. China and India had bid up the market to $1200/ton for 18-46-0(DAP) this summer. The Chinese had put an export tax on nitrogen and phosphorus last year, but have dropped it for December-January 2009, trying to encourage buying. Other major world companies (Yara, Agrium, Koch, Terra) have curtailed production in Europe, Canada, the Caribbean and the U.S., but there is too much excess supply for production cuts to affect prices in the short term.



Recommendations



As you plan for 2009, fertilizer prices will be fluctuating and may be higher than in 2008, although there may be some bargains later next spring. You can't control fertilizer prices (other than being aware of world trends and locking in a good deal when you find one) and you can't control commodity prices. What you can control are your production inputs and costs by improved management.



The keys to maintaining profitability are to know your soil test levels and do the best job of fertilizer application to enhance efficiency. A new Web site to develop fertilizer recommendations based on UNL criteria can be found at soiltest.unl.edu.For more information on reducing fertilizer and other input costs, see the UNL Extension Web site Surviving High Input Costs. It offers several strategies for reducing fertilizer costs.



SOURCE: University of Nebraska.