I spoke with a farmer yesterday who had just made one of the most difficult operating decisions of his career.
Last week, he took out a 2009 operating loan to lock in anhydrous ammonia at around $950 per ton. Since it's the most he's ever spent on nitrogen, he's afraid prices will come crashing down.
For the October issue of Prairie Farmer, we'll be taking an in depth look at the supply and demand issues surrounding fertilizer. Over the course of several weeks, I spoke to more than ten sources on this topic. They included fertilizer retailers, manufacturers, farmers and university professors. Here's what I'm hearing:
1. Anything under $1,000 per ton for anhydrous is a good price. In mid-September, I was hearing wholesale prices of over $1,100 per ton.
2. Those in the fertilizer industry are putting the blame on global demand. I asked those in the fertilizer industry if they're just trying to take a bigger chunk of the farmer's money since grain prices have gone up. Everyone said global demand is making it harder for U.S. farmers to secure cheap fertilizer.
3. Volatility appears to be the name of the game. Many of the retailers said they foresee prices to remain high until spring of 2009. After that, it's anybody's guess.
4. No one is going to build a nitrogen production facility in the U.S. anytime soon. Natural gas prices are too high, and the permitting process will take too long. Therefore, we'll remain dependent on imports.
5. I also asked retailers if it's fair to ask farmers to assume all the risk in prepaying. Many said they are simply layering in the cost of nitrogen and trying to assure farmers get the best deal by paying early, when they can get it for cheaper.
6. Many don't look for prices to take a nosedive anytime soon. Therefore, university professors are stressing conservation practices when applying fertilizer. Now that fertilizer prices have reached this level, the payback for using variable rate technology is even greater.
7. If rail carriers get their way and are relieved of their obligation to carry anhydrous, this could get ugly. For many states, this would effectively remove a source of nitrogen. In a global market, any reduction of U.S. purchasing power is not a good thing.
That's what I've been hearing. Let me know what you've been hearing.