Source: University of Missouri

Fertilizer prices have been changing rapidly and, at times, in unanticipated directions. John Lory, University of Missouri, has attended a number of talks in past couple years where industry experts have prognosticated price and supply moving in one direction only to have the opposite happen.

In this era of uncertainty an understanding of what has affected prices in the recent past may help farmers better predict what will happen in the near future.

The recent high point in fertilizer prices for nitrogen, phosphorus and potassium was in late summer and early fall of 2008. A couple global trends worked to push fertilizer prices to record highs.

The rapidly expanding world economy in 2007 and 2008 led to increasing worldwide grain production. Worldwide grain production has increased about 10 percent in the past two years, according to USDA statistics. Expanding grain production increases demand for fertilizer.

Another important trend was the weakening dollar. The U.S. dollar lost more than 20 percent of its value compared to a number of international currencies. Most nitrogen and potassium fertilizer is purchased outside the country so a weak dollar pushes up U.S. fertilizer costs.

Nitrogen price is dominated by energy costs. Record natural gas prices ushered in record high nitrogen fertilizer costs. Nitrogen imported from overseas is also affected by shipping rates which have been high until the recent economic downturn.

Inputs into phosphate fertilizers include the mined phosphate rock, sulfur to make the acid to treat the rock and ammonia used in making DAP and MAP. The cost of all these inputs increased dramatically in 2008. A short-term disruption in sulfur production in the US caused a shortage in 2008. Both India and China took steps in 2008 that increased phosphate usage in each country while reducing phosphate fertilizer available in the world market. This "perfect storm" of higher input costs coupled with demand exceeding supply created the unanticipated and unprecedented spike in phosphate fertilizer prices.

Potassium market forecasts have anticipated tight supplies and higher prices for at least a couple of years. Potash production was actually lower in 2008 than in 2007 because of infrastructure issues such as the flooding of the Berezniki potash mine in Russia in July 2007. A labor strike in 2008 in Canada further crimped supplies this fall.

As Lory wrote this article in early January 2009 nitrogen and phosphate prices were in a downward freefall reaching levels not seen for a couple years. What can we expect next?

Will nitrogen prices be higher? Consider where fertilizer demand and energy prices are likely to go. Demand will increase as we approach the growing season in the northern hemisphere and energy costs seem to be increasing once more.

Dropping prices have almost eliminated demand for phosphate fertilizer while retailers and farmers look for the bottom price in the market. Demand has dropped to the point where some phosphate mines are being idled. As recently as October 2008 industry experts were predicting demand would exceed supply for the next three years. With the economic downturn demand has dropped but so has production. My best guess is that we are in for a period of high volatility in phosphate fertilizer prices.

Potash supplies are forecast to remain tight for at least the next three years. If demand continues to fall price will inevitably follow. Up to now events have conspired to keep supply on the tight side despite the economic downturn.

The local fertilizer industry faces some daunting challenges this spring. Those suppliers who bought fertilizer this fall have high priced material that would be sold at a substantial loss at current prices. At the same time many suppliers have hesitated to buy fertilizer in preparation for the spring crunch.

Fertilizer tonnage bought in Missouri dropped by over 40 percent in the second half of 2008 compared to 2007. It is unclear if we have the infrastructure to meet the pent up demand for fertilizer that will inevitably occur as we approach the growing season.

So the only thing we can say with any assurance about fertilizer prices and supply in 2009 is that they will likely be as unpredictable as they were in 2008.