U.S. farmers may fail in fertilizer face-off
Growers believe the price of fertilizer should follow corn lower, as nearly half the fertilizer used in the United States is applied to corn.
Strong margins for producers of nitrogen-based fertilizers do not make high prices easier for farmers to swallow. Costs for natural gas, used to make nitrogen fertilizer, are hovering near a 10-year low.
At Potash Corp, the world's top fertilizer producer, reduced demand knocked down nitrogen sales volumes by 15 percent in the last quarter to 1.1 million tonnes, the lowest for that quarter since 2008. The Saskatoon, Saskatchewan-based company has slowed production of another key nutrient, potash, at mines in Canada due to anemic demand.
The company said demand suffered as buyers "paused to assess market conditions." It predicted sales will rebound this spring as long as corn prices support an expansion of plantings.
Mosaic said in January it would cut potash production 20 percent over the following four months due to an oversupply.
Agrium, a smaller player in the fertilizer market, confirmed buying was muted in the fourth quarter, even though it reported an 8 percent rise in nitrogen sales volumes.
"We expect pent-up demand to continue to emerge," Agrium said this week.
Farmers' buying strategies have roiled corporate profits. Potash Corp is projecting one of its most profitable years ever but issued first-quarter earnings guidance of 55 to 75 cents that fell short of analysts' expectations of 84 cents.
Logistical problems could prevent farmers from snagging the fertilizer they want if they wait until the last minute to buy, dealers said.
Hintzsche Fertilizer in Maple Park, Illinois, is among the companies that likely will not have enough on hand unless orders come in soon, general manager Jeff Eggleston said.
Eggleston said he tells farmers, "I'm not buying it if you guys aren't committing. I'm not going to get stuck with it."
Some farmers may need to delay their planting because dealers will not be able to fill a flood of late orders, said Darrel Hora, general manager of Mettler Fertilizer in Menno, South Dakota. He said it was "not a realistic thing" to expect fertilizer dealers to keep enough fertilizer on hand to fulfill all the built-up demand from farmers.
"If the people wait too long to buy, they may have to wait a little longer until they get to apply this stuff," Hora said.
The risk of a temporary, last-minute shortage is particularly high if weather is warm and dry in the spring, encouraging an early rush to plant extra corn acres.