Fertilizer prices have been falling dramatically since the end of November. While that decline may not yet be fully realized at retail outlets, there should be buying opportunities ahead.
David Asbridge, a long-time American agricultural economist, has recently been concentrating on the fertilizer market. His company, NPK Fertilizer Advisory Service, publishes a newsletter called the NPK Insider.
Asbridge says the urea (46-0-0) market basis the Gulf fell to a six-month low just before Christmas and then made a $30 to $40 per ton rebound right after Christmas. Back in September and October, Gulf urea prices were more than $475 a ton. After the post-Christmas rebound, they were slightly more than $400.
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According to Asbridge, urea prices started the fall season way too high. Prices increased rather than decreasing through the summer because of political volatility in the Middle East and the bullish outlook for grain prices. As grain prices have softened, so has fertilizer demand. On ammonia, wholesale prices in the Midwest dropped by about $80 a ton in December.
The biggest decline has been in phosphate. Since the end of November, Gulf prices for DAP have dropped by close to $130 a ton and are now down by roughly $180 a tonne compared to the peak in August.
DAP is diammonium phosphate, 18-46-0. In Western Canada, we see MAP, which is monoammonium phosphate with an analysis of 11-52-0.
Mosaic’s announcement that it plans to curtail phosphate production by 250,000 tonnes in the first quarter of 2012 is a clear indication that the market is currently oversupplied.
Retail prices are often much slower to react. In his newsletter, Asbridge lists the current spread between retail (farm) and wholesale urea prices at $100 a ton. While he thinks wholesale prices might now continue to edge upward, he is expecting the spread to narrow by $40 to $50 over the next couple months.
There’s a natural tendency for retailers to resist price drops because they are stuck with higher priced product from earlier in the year. However, competition usually prevails.
On ammonia, Asbridge believes the U.S. farm retail price could come down by as much as $75 a ton in the next couple months.
It’s often difficult for producers to get a handle on what’s happening in the fertilizer market. Retailers are quicker to talk about potential price increases than to admit world prices are falling and retail will likely have to follow suit.
In most years, producers save money by buying their fertilizer in the fall. Typically, there’s a price increase as spring approaches. Back in 2008, it went the other way big time.
Charts from the Alberta Farm Input Price Survey show that urea dropped from nearly $950 a tonne in October of 2008 to about $620 by April of 2009. On phosphate, the price over that time frame went from $1,350 a tonne to $800.
Urea bottomed out at $450 a tonne in the fall of 2009, while phosphate at that time was as low as $500.
We aren’t seeing that magnitude of price move, but the price direction is undeniably down. Producers who didn’t buy last fall should be rewarded.
Asbridge believes the next six weeks may offer the best opportunity to lock in supply. There can be a significant price difference from one retailer to another, especially in a market that’s had a significant price change at the wholesale level. To get the best deal, you may have to shop around.
