Fertilizer Costs Likely to Drop This Spring02/01/2016
Farmers can expect costs for fertilizer—nitrogen, phosphate, and potash—to be between 10% and 30% lower this spring compared to last year.
“Significant macroeconomic uncertainty driven by weakening growth in China, recession in Brazil and highly volatile FX markets has severely impacted global fertilizer prices since the summer of 2015,” said Societe Generale analysts Christopher Narayan and Rajesh Singla in a recent report previewing spring planting in the U.S. “Fertilizer prices have fallen by (about) 15% to 30% as higher global uncertainty led to just-in-time purchase by farmers. Buyers continue to wait for the bottom amid expectations of a further fall in prices, just like consumers wait in a deflationary environment.”
Here’s what they expect for these key inputs.
- Nitrogen: Down 30% in spring 2016. Given the importance of nitrogen in corn production, this factor could be critically important to growers’ profitability this year. According to the Societe Generale analysts, “nitrogen accounted for (about) 53% of total fertilizer cost (about 22% of total operating cost) for corn and about 11% (2% of total operating cost) for soybean production in the U.S.” in 2015. What’s driving this price drop? Falling prices in China, availability of cheap fertilizer in overseas markets, sliding energy costs, and big supplies.
- Phosphate. Down 10% to 15% in spring 2016. More strategic production by phosphate companies and tighter supplies mean that this input will ease less than other fertilizer inputs. Overall, phosphates represented “21% of total fertilizer cost (about 9% of total operating costs)for corn and 38% of total fertilizer cost (about 8% of total operating costs) for soybeans” in 2015, according to the Societe Generale report.
- Potash. Down 25% to 30% in spring 2016. Credit “a Brazilian recession, a weak monsoon in India, a challenging macroeconomic environment and highly volatile FX markets” for the anticipated drop in potash prices in the months ahead for U.S. farmers. Those prices are expected to stay low: “We do not expect a meaningful recovery in potash prices given the extremely challenging conditions foreseen in the near term,” according to the report. How much difference will that make to farmers’ cost of production? It should certainly help. Last year, “potash cost accounted for about 25% of total fertilizer costs (about 10% of total operating costs) for corn and about 50% of total fertilizer cost (about 11% of total operating costs) for soybean production in the U.S.,” according to Narayan and Singla.
Source: Alison Rice, AgWeb.com