Sky-high fertilizer prices stabilize Drops of 50 to 75 percent from last fall may be too late for some farmers.

Feb 4, 2009      The Wichita Eagle

Rick Plumlee

Feb. 4, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- Record-high fuel prices, a deflated dollar and even the Beijing Olympics were contributing factors in the extremely high fertilizer prices of 2008.

But just in time, costs stabilized enough so at least some Kansas farmers could get a firmer grip on their 2009 production costs.

"Planning is getting easier," said Terry Kastens, an agriculture economist at Kansas State University.

Unfortunately for some figuring their input costs, they may not be in a position to take advantage of the lower prices because they locked up their prices on the high end.

"I guess they'll have to eat that," said Steve Baccus, an Ottawa County farmer and president of the Kansas Farm Bureau. "The producers I've talked to that booked at the higher price are going ahead and paying that price."

But things are turning around after 18 months of high fertilizer prices.

Fertilizer prices have dropped 50 to 75 percent since peaking last fall.

Nitrogen that was going for $800 per ton has dipped to less than $300. Phosphates are still on the high end at $850 to $875 per ton, but that's better than the $1,200 they were drawing a few months ago.

A number of factors went into those high prices, including the 2008 Olympics.

China is one of the world's largest fertilizer producers. In an attempt to reduce air pollution, China shut down its urea and other manufacturing plants temporarily and imposed a high export tax on urea from April to September.

But with late fall came a stronger dollar and tumbling fuel prices. Ocean freight that was at $120 per ton last summer was chopped to $30.

Sanity returned to fertilizer prices -- at least on paper.

It probably doesn't feel so sane for those who bought fertilizer back in September on the possibility that prices would keep soaring.

"There are a lot of dealers and traders who got caught with high-priced fertilizer," said Randy Whisenhunt, a manager for Ag Service, a fertilizer and herbicide retailer based in Hillsboro.

Farmers, too.

Kastens said he heard of areas in southern Nebraska where 60 percent of the customers filled their 2009 fertilizer needs before the prices came down.

"I've heard of Kansas farmers doing the same thing," Kastens said. "I don't have any hard numbers. But it has shocked me as I hear the stories come out."

Plus, some of that high-priced fertilizer is still in the pipeline. Unloading it won't be painless.

"You can blend it out," Whisenhunt said, "but it's still going to hurt.

"At some point, you have to take a hit, but I think (fertilizer prices) have stabilized."

At the same time, 2008 balanced those high fertilizer prices with record grain prices.

Those who hedged forward fertilizer in tandem with grain should now be in good shape, according to those who track ag management.

Except not many producers did that.

"Ironically, more farmers did contract forward their whole farm needs (than normal)," Kastens said, "but not all projected forward crop sales."

He said producers wouldn't forward-contract 100 percent of their crops "because of risk of production."

But Ryan Sherwood, a risk management consultant for FCStone's office in Omaha, said producers can forward contract 100 percent of a grain by balancing crop insurance with put options.

"You can fully hedge your crop at 100 percent or more," Sherwood said.

Perhaps lessons to be learned for the next time around. But for now, the fertilizer prices have returned to earth.

Reach Rick Plumlee at 316-268-6660 or rplumlee@wichitaeagle.com.

Newstex ID: KRTB-0218-31440009

Return to full Washington Letter