The predicted increase in fertilizer prices this fall is coming true.
A biweekly survey by the United States Department of Agriculture of fertilizer prices in Illinois shows that from the beginning of September to the end of October anhydrous ammonia rose about 16 percent, diammonium phosphate 18-46-0 and monoammonium phosphate 11-52-0 rose about 20 percent and potash climbed about six percent.
Surprisingly, urea 46-0-0 climbed only two percent.
The fertilizer price rally is tied directly to rising grain prices and increased demand.
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Over the same two-month period this fall, corn futures have risen about 29 percent, soybeans 22 percent, hard red spring wheat seven percent and canola 14 percent.
Fertilizer companies report that South American growers were more aggressive in their fertilizer use as they seeded in the past two months
U.S. harvest progress is running well ahead of normal and American farmers are getting to fall fertilizer applications earlier than usual. Analysts expect U.S. corn acres next season will increase and corn is a big fertilizer user.
University of Illinois economist Darrel Good calculates that American farmers could increase their total seeded area in 2011 by six to seven million acres, in response to higher crop prices. We might get a taste for the acreage bidding war between corn and soybeans following the Nov. 9 USDA crop production report. Many analysts believe it will lower its estimate of this year’s average corn yields and some also believe it will also lower soybean yields.
With fertilizer companies shipping more product at higher prices, their profits are rising.
PotashCorp, the target of a hostile takeover bid by BHP Billiton, reported third quarter earnings of $402.7 million, up from $247.9 million in the same quarter last year.
In the quarterly report, PotashCorp head Bill Doyle drew attention to the tight stocks of some crops, the need to increase agricultural productivity to keep pace with rising food demand and the need to replace nutrients after two years of reduced fertilizer use.
Together, these developments have caused the fertilizer industry to pass what he called “the inflection point,” a turning to a new level of profitability.
It is no wonder PotashCorp shares had risen to about $145 at the beginning of this week, well above BHP Billiton’s offer of $130. If the federal government approves the takeover process, the bid will have to be sweetened to attract shareholders.
Doyle thinks there is room for “ongoing pricing momentum.” While farmers dislike the increase to their costs of production, the good thing is that fertilizer values will climb higher only if grain prices are also strong.
