Price fertilizer now, analyst says

Price fertilizer now, analyst says

By: Andre Stephenson 01/09/2013 @ 1:50pm

U.S. farmers wondering whether to price their fertilizer now or later in the spring might find the lowest prices over the next few weeks, says fertilizer analyst David Asbridge.

With the exception of ammonia, Midwest wholesale prices for nitrogen, phosphate, and potash are solidly lower than a year ago, but Asbridge thinks fertilizer producers may use the spring application season to see if some nominal price increases might stick.

He says such a price push could start as early as mid-February. "I don't foresee a big spike in prices, but the producers might try to add $20 to $25 to a ton of potash," says Asbridge, president of NPK Fertilizer Advisory Services.

Wholesale potash prices in the Midwest are currently around $470 per short ton, down from about $560 a year ago, says Asbridge, who tracks them in his weekly newsletter. Last summer, prices dipped to about $490, but drifted up to around $505 during the fall application period. He thinks another uptick could come during the spring application season.

Another price example, phosphate (as DAP), rose to about $570 per ton last autumn, up from $510 last spring. It's currently around $540, says Asbridge.

Among nitrogen sources, liquid UAN fertilizer is currently around $350 per short ton (Midwest wholesale), down from $450 last spring, but it could move up to about $370 this spring, says Asbridge, who is based in St. Louis.

Dry urea nitrogen, around $440 a ton, is down sharply from about $750 last spring, but he sees $480 as possible this spring.

Meanwhile, the liquid ammonia market is slightly different because current prices are seeing support from supply tightness. But ammonia plants are running "flat out," says Asbridge, to rebuild inventories ahead of the spring. So he's not looking for prices to move much higher from here. Liquid ammonia is currently priced around $755 per short ton, up from $700 last spring, but still down from about $800 last fall.

That's the supply side. On the demand side for fertilizer, Asbridge thinks that this month's early farmer bookings for spring might be leaning toward the light side for tax reasons. With strong prices for 2012 crops, Asbridge thinks many farmers paid for their 2013 fertilizer before December 31, in order to book an expense against 2012 income. That would leave a dip in demand this month, only to pick up closer to spring application.

This year, the big fertilizer story seems to be potash, which is seeing a four-year slide in prices after a corresponding rise in production. The fertilizer industry expanded potash capacity after the 2008 record price and is now seeing a drop-off in demand, particularly from Asia.

In India, a big user of potash, the government has slashed fertilizer subsidies over the past several years, so farmers there are paying more and using less. In talks with Canada's potash cartel Canpotex, India is close to negotiating a 2013 import price that will help set a benchmark for world wholesale potash prices this coming year.

China has already agreed with Canpotex on a 2013 potash import price of $400 per metric ton (delivered), down from $470 a year ago. Last year, India's price was $490, so Asbridge and other industry observers are looking for about $420 this year for India, explaining that Canada-to-India freight is about $20 more than Canada to China. Also, notes Asbridge, with smaller subsidies, Indian farmers have cut back usage enough to build up India's potash reserves, giving India more negotiating leverage. India has also slowed phosphate imports, helping to keep phosphate prices relatively stable.

(Note that India's and China's prices are measured in 2,205-pound metric tons, while the U.S. price is for 2,000-pound short tons.)

Meanwhile, potash oversupply in Canada and Russia/Belarus comes at a time when U.S. farmers are likely to cut back application. Because last year's dry weather didn't deplete potash (and phosphate) supplies from the soil, Asbridge expects less application this year, perhaps 6% to 8% less on potash and 4% to 6% on phosphate. With demand slack, he doesn't look for much upward price pressure before the next fall application season.

In 2009, some U.S. farmers responded to high potash costs by slashing application by 30% to 50%, notes Asbridge. That meant less demand, which helped to reverse 2008's price run-up. While potash is a critical nutrient, reserves can carry over in the soil from year to year, allowing farmers to cut back or even skip an application.

Longer term, there's even more fertilizer production capacity coming on. "I don't see much price appreciation," says Asbridge. "For the next three to five years, I see us working off excess capacity."

Most of the new production since 2008 has come from expansion of existing facilities. But BHP Billiton is building a massive new potash mine in Canada that is expected to produce 7 to 8 million tons annually within four to five years.

Also longer-term, Asbridge expects corn prices to settle back to a more normal range, which could help to keep a lid on fertilizer prices. He notes that it was the sharp run-up in 2008 corn prices that contributed to that year's record potash prices near $1,000 a ton.

For nitrogen, long-term supplies should also be good. Asbridge notes that both the U.S. and Canada are expanding production capacity for natural gas, the feedstock for nitrogen fertilizer. He specifically cites new capacity coming in a few years from CF Industries and Koch Industries.

Written by Andre Stephenson, a freelance writer for Successful Farming/