It looks like a great time to buy fertilizer for the next growing season, but a number of factors will cause many producers to hesitate.
For the record, I’ve signed a contract for most of next year’s nitrogen needs, buying urea for July pickup at much less than $400 a tonne. I’ve also bought most of the phosphate (11-52-0) that will be needed, paying slightly more than $600 a tonne.
Prices of both have dropped dramatically in recent weeks. Alberta Agriculture’s Farm Input Price Survey for May shows urea at $560 and phosphate at $803.
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A drop of around $200 a tonne on both urea and phosphate in less than a month is nothing short of amazing.
Historically, these are very attractive price levels. Alberta Agriculture price graphs from the last five years show the highest price for urea was $825 in May 2012. The lowest urea price before now was $525 in October 2013.
On phosphate, the high of the past five years was $840 in May of 2015, while the previous low was $660 in October 2013.
So will everyone jump on this opportunity and buy their fertilizer in the summer and save tens of thousands of dollars? Nope.
Many observers believe urea prices will start edging back up, but observers and analysts are often wrong.
Some producers will hold out hoping for even lower prices or at least for prices that don’t significantly appreciate.
On phosphate, views are more mixed on whether we’re seeing price lows or whether the bottom is yet to come.
Market volatility aside, storing fertilizer for a long period of time isn’t much fun. The longer it’s in storage, the more difficult it can be to extract from fertilizer bins. If you’re buying a blend, sulfur mixed with nitrogen can make the problem worse.
It’s also advised to put fertilizer in bins during periods of low relative humidity to prevent extra water being absorbed.
Some also advise emptying and refilling fertilizer bins when the temperature is much lower, but that’s a lot of extra work.
Another barrier is financial. It’s the time of year when bank accounts have been drained by seeding expenses as well as in-crop herbicide and fungicide applications. Fertilizer bought now won’t generate grain for sale until the fall of 2017.
Back in 2012, the price of nitrogen was sky-high at seeding time, and many analysts were advising producers to buy during the summer to avoid prices that would be even higher in the months ahead.
In fact, if producers didn’t buy, some were suggesting that fertilizer might not be available at any price.
Those analysts were wrong. Prices reversed. Producers who acted on the advice lost a lot of money, particularly if they didn’t lock in the equally sky-high prices for new crop canola that were available at the time.
This time is different. Prices are historically low, rather than at or near all-time highs. It’s hard to believe urea will go much lower, although phosphate may still have room to drop a bit.
But will prices rise substantially between now and next spring? Will it be worth tying up all that money so early? Will it be worth dealing with even more storage issues than usual?
My guess is yes. I’m betting that come next April and May, we’ll look back and recognize this as a major buying opportunity.
But I could be wrong. Wouldn’t be the first time.
