Fertilizer prices likely to jump around for 2012; linked to economy

SALEM, Ohio —The turbulent economy will be the deciding factor in the cost of fertilizer next spring.

Barry Ward, a leader in production business management at The Ohio State University, said fertilizer prices have been increasing, but he thinks there will be a normal price pattern unless other problems arise in the economy.

2011 price jumps

Ward said input prices increased in 2011 quite a bit from 2010.

For example, ammonia increased 24 percent, urea gained 40 percent, liquid nitrogen jumped 32 percent, phosphorus rose 18 percent and pot ash leaped 38 percent.

Ward said his research shows that the increase has been driven by world demand. He added the high commodity prices have triggered higher demand for fertilizer, in turn creating the price jumps.

He expects a slight to moderate increase this winter and spring in the price of fertilizer if demand continues at the same rate.

Recession?

However, if the economy goes into a recession in the United States or Europe, then farmers could face lower commodity prices and this could create less of a demand, meaning lower prices.

Strategies

Ward said there are some strategies farmers can put into place in order to deal with the uncertainty of fertilizer prices.

One way is to avoid purchasing all of the fertilizer at once.

“Spread out the purchase. It helps to manage the risk that it could rise or fall,” said Ward.

He said in 2008, fertilizer prices started gaining in the fall, so some producers made large purchases — only to watch the price fall in the spring of 2009.

Another risk management tool is to time the fertilizer purchases with crop sales.

“It will help to avoid being caught purchasing fertilizer at the height of the market,” said Ward.

He also recommends timing the purchase when producers are forward contracting crops.

Another option to manage the cost is to time the fertilizer purchases at the slowest times of the year for fertilizer purchases. In other words, purchase the inputs in late summer and early fall when there is a weak market for fertilizer.

“It’s not the peak time so often producers can see lower prices,” said Ward.

The unknown

Ward said the best way for farmers to mange their risk and mitigate the risk is to prepare for the unknown.

“There are just too many variables to judge what fertilizer prices will do in the future, be sure to plan ahead,” he said.