Farmers should brace for some of the highest anhydrous ammonia prices in history this coming spring.
From June 2007 to June 2008 retail prices for anhydrous ammonia could nearly double, says Joe Dillier, Plant Food Market Manager for GrowMark, a wholesale fertilizer distributor and cooperative
"Last summer retail prices averaged around $500 per ton and went up as high as $650 per ton into the fall application season," he says. "We're going to see a substantial increase in spring prices, starting at around $645 per ton up to the high $700s and maybe over $800 per ton."
While some retail dealers are offering forward pricing for spring application, many are still waiting to see how it "shakes out," says Dillier. Either way, farmers aren't happy.
"We just got quotes from our usual source for fertilizer - $685 per ton for ammonia and $360 per ton for 28% solution," says Brian King, who farms near Marion, Ind. "These are up from $640 and $340 just three weeks ago. The manager says the prices may be good for one day or two weeks, until the next round of increases comes along. What a bunch of B.S. this has become.
"Farmers have finally started to be rewarded for the risks we take and now every supplier has their entitlement mentality in high gear and are forcing their collective hands deep into our pockets to extract their piece of the pie," he adds.
"Where is the 'extra' demand coming from? Are there magically more acres created in some far flung area? There is more to this money grab than is being reported."
Dillier believes some price relief will occur later in 2008, thanks to added production capacity. "Prices may not fall back to the levels of a year ago, but I don't think they will continue to rise dramatically from the prices we are at now," he says.
Added fertilizer capacity is scheduled to be built in countries where there is cheap natural gas - mostly the Middle East, Qatar, Latin America, and in places where there hasn't been any production until now, such as Peru and Trinidad. But it will take some time to get those new plants and additions online.
World fertilizer production has increased in the last two years and will increase even more in the next two years. The problem now is, demand outstripped that capacity. "Three years ago the marketplace was worried that these capacity additions were going to hurt the market price for fertilizer because of oversupply," says Dillier. "That was from the industry perspective. That has not happened; prices have shot up to record levels.
If a recession occurs in Brazil, China or India, where economies are growing fast, fertilizer demand will fall. But even without an economic hiccup, increased production capacity should somewhat temper these higher prices.
"I have to believe we will have seen most of the big price run up by the end of the spring 2008 planting season," says Dillier. "But prices will continue at pretty strong levels. I don't think we'll go back to the levels of a year ago for at least a couple of years."