WINNIPEG – Farmers can use grain futures to hedge their price risk. Theoretically, they could use fertilizer futures the same way.
But fertilizer market experts are divided on whether diammonium phosphate and anhydrous ammonium futures, traded on the Chicago Board of Trade, are practical tools for farmers looking to protect themselves from rising prices.
The biggest fertilizer broker in the United States says farmers should not feel like they are completely at the mercy of fertilizer producers.
“If (a farmer) is complaining, that’s a cop-out,” said Bob Thwaites, who works with Merrill Lynch in Winter Park, Fla. “It’s because he either doesn’t know or doesn’t understand or isn’t willing to learn how to hedge his risk.”
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But a merchandiser for DeBruce Fertilizer, a major U.S. supplier, said farmers may not have all the information they need to successfully buy and sell the futures.
“I think that a farmer would have to know an awful lot about the fertilizer industry to get into it,” said Will Talbert in Kansas City, Missouri.
Few, if any, farmers use the futures. In fact, market watchers said they doubt whether any Canadian fertilizer producers or retailers hedge their risks on the CBOT.
The futures contracts are bought and sold by large fertilizer producers, terminal owners, and large warehouses and dealers.
Thwaites acknowledged his customers are the type that take delivery in a barge or rail car. “We don’t usually go smaller than that,” he said. “The guys who buy by the truckload, we don’t usually have those guys involved.”
It’s a small, specialized business, and Thwaites said trade is often thin, especially in the anhydrous contract.
Talbert said the contract doesn’t reflect what’s happening in the domestic market.
“The delivery mechanism is so flawed that the contract is not priced the way it should,” agreed Pat Pembroke, a CBOT spokesperson.
“The people I’ve talked to who have successfully used the contract are large, industrial companies that take delivery,” she said. “They are longs in the market and they own their own anhydrous ammonia barges.”
Pembroke said she would strongly recommend Canadian farmers don’t use the contract, at least until fall when the CBOT makes changes to both contracts that it hopes will attract more players.
