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Prices look better for fertilizer than for gasoline, diesel

As the saying goes, there’s good news and bad news among 2010 crop inputs.

Prices look better for fertilizer than for gasoline, diesel

As the saying goes, there’s good news and bad news among 2010 crop inputs.

Fertilizer definitely should be significantly cheaper than the past couple of years. But gasoline and diesel fuel prices are likely to rise.

Actually, cheaper fertilizer already has been a help to the winter wheat crop growing right now.

“We’ve had the lowest fertilizer cost for the current wheat crop for inputs as we’ve seen in years,” says Dub Vinson, president of Abilene Ag Service and Supply Inc., Abilene, Texas. “That’s very positive.”

Key Points

• Nitrogen fertilizer expected to be cheaper for 2010 than in 2009.

• As world’s big exporter of nitrogen, China could impact prices.

• Both gasoline and diesel fuel are expected to increase 15% to 20%.

Vinson not only sees fertilizer costs from the perspective of a large agricultural service and supply business that covers a wide region, but he himself also is a large grower of wheat.

Going into 2010, Vinson says the price on 18-46-0 (nitrogen, phosphorus and potassium) was $445 per ton. Only two years ago, that same N-P-K fertilizer had soared wildly to more than $1,200 per ton.

Vinson says urea increased a dab going into a new year and he’s not sure why.

Mark Welch, Texas AgriLife Extension Service economist, College Station, agrees with Vinson’s assessment of a more positive outlook. Welch says favorable conditions are shaping up for the price of fertilizer in 2010.

Welch notes his forecast pricing model for anhydrous ammonia is $430 per ton for the spring of 2010, compared with about $680 per ton for anhydrous last spring.

“That will be the cheapest since 2005,” Welch says. “That will encourage more farmers to plant corn.”

The veteran economist says in those years when fertilizer is more costly, soybeans generally are seen as a more attractive option. But the lower fertilizer prices expected for 2010 will increase the net returns for corn.

“If the price of nitrogen fertilizer stays at the spring-projected prices, we could be looking at a very large corn crop in 2010,” Welch says.

But even if there is a big corn crop driven by cheaper fertilizer in 2010, Welch says the outlook for corn prices still remains positive because of the great demand for corn. (i.e., corn use for ethanol production).

“Corn, I think, is going to be strong since we’ve got high demand from both feed and fuel,” he notes. “Wheat demand is flat; soybeans are the big question. We’ll have enough if South America comes through. But if China continues to import soybeans, and we have a short crop in South America, it could get really interesting. Rice carryover stocks are tight again as well.”

Vinson agrees that flat wheat prices dilute some of the jubilation of celebrating cheaper fertilizer. Higher wheat prices and good rainfall this spring would have a lot of folks smiling.

Without rain, growers will have little wheat to sell, anyway.

Other factors

Another factor that muffles some of the joy in the 2010 scenario for agricultural production is fuel prices.

A general economic recovery would be wonderful for the overall financial outlook — except more money to spend in this country and elsewhere likely also will increase demand for fuel.

Steven L. Klose, Texas AgriLife Extension economist, College Station, says that led by a gradual but general economic recovery in 2010, an increased oil demand can be expected.

As a result, Klose will not be surprised to see diesel and gasoline prices increase from 15% to 20% compared with 2009.

Nevertheless, that still won’t approach what agriculture dealt with in skyrocketing fuel prices just a couple of years ago, or the recent 20% increase in fuel prices.

Texas AgriLife Research Economist Charlie Hall says he expects gasoline prices to range from about $2.60 to $2.65 per gallon this summer.

Bob Stallman, president of the American Farm Bureau Federation and a Columbus, Texas, rice and cattle producer, says climate change legislation will have negative impacts on U.S. agriculture. Stallman notes a mandatory cap-and-trade system on high-carbon fuels, such as oil and coal, would restrict those fuel sources. That clearly would be bad news for farm inputs, he assures.

Natural gas inventories reached a record level going into this winter. Philip Kenkel, Oklahoma State University economist, Stillwater, says that while natural gas is a major ingredient in nitrogen fertilizer, it’s still important to keep in mind that the U.S. now imports half of its nitrogen product.

In addition, China is the world’s largest exporter of nitrogen. The pace of China’s own economic progress ultimately could have a major impact on nitrogen prices to U.S. farmers in the future.


EXPECT PUMP PAIN: The bad news is gasoline and diesel prices should increase 15% to 20% in 2010 compared with last year, creating more pain at the pump. The good news is the forecast of sharply lower fertilizer prices.

This article published in the February, 2010 edition of THE FARMER-STOCKMAN.

All rights reserved. Copyright Farm Progress Cos. 2010.

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