Editor's Note: Farm Futures continues a new ongoing series taking a more in-depth look at key input prices for the 2008 crop year. While higher crop prices have been good news on the farm, there's a bad-news scenario building for fertilizer costs. Our coverage continues with a look at supply issues for next spring.
Even with high prices, ammonia supplies remain very tight and will probably remain so this coming spring.
"If the spring goes the way the fall has gone, those who don't have their spring ammonia needs already booked may find it very difficult to get supplies," says Growmark's Joe Dillier. "We've got a very good chance of having the same thing that happened last fall happen next spring - meaning, once you get in season you can't buy it."
Normally you wouldn't see a lot of prepay or forward buying of N for spring. This year will be different. "We're getting orders in now at the end of November and have encouraged folks to do that," says Dillier. "We're telling them that if you wait until spring there's a good chance you won't be able to get it."
Anhydrous supplies got very tight in the spring of 2005. A that time the market developed a wider spread and ammonia got snapped up in the marketplace. And because it got bought up so quickly, it became very difficult to buy spot purchases in season.
"Today by comparison the spreads are even more historically high," says Dillier. "We've never seen this situation to this extent - again, all driven by this strong international demand and bidding up of other nitrogen products."
You might expect high demand to cure low anhydrous supply problems. And it will — eventually. "You have to remember, this is only a year — the cycle is longer than that," he says. "It will take three years to bring on more production. But it probably won't be domestic. I think a lot of it will be international-based, where there is cheaper natural gas. In
His advice? Stay very close to your retailer and watch what's happening in the market. Farmers are very aware of grain prices, but they need to stay in contact with fertilizer pricing that same way. Unfortunately you can't just open the paper and find those prices. So stay close to your retailer and watch for changes in pricing.
Spring retail price estimated at $625 for this example. Note the local price of anhydrous/ton is well above the Gulf price.