Report: Possible Price Spike Coming?

Fertilizer prices could see a spike in prices as demand picks up this spring, according to a Rabobank report.

With many manufacturers and distributors running on low inventory stocks, any sharp increase in demand could result in a logistical bottleneck causing higher short-term prices for farmers, the “Farm Inputs: Getting Back to Reality” report says.

Rabobank analyst Adam Tomlinson says in the report that while an increase in agricultural commodity prices may lead to rising demand for farm inputs and drive up prices, he does not expect them to reach anywhere near the highs of mid-2008.

“Along with a fall in agricultural commodity prices since mid-2008, annual fertilizer application by tonnage dropped by 6.7% in mid-2009,” he explains.

Lower demand levels have meant that global prices for manufactured farm inputs remained subdued throughout 2009. The collapse of international farm input prices in late 2008 resulted in many manufacturers and distributors being caught with large stocks of highly-priced inventory and production capacities in excess of existing demand.

In response to this, manufacturers cut back production and the supply chain lowered inventories, potentially having a marked impact on prices if the seasonal spike in farm input demand develops.

Uncertainty in the energy markets will also affect input costs this spring.

“Electricity, petroleum and natural gas prices influence the costs for farm inputs in two ways,” Tomlinson says. “Firstly, through the cost of raw inputs, such as natural gas or petroleum for nitrogenous fertilizers and agrochemicals. Secondly, through the cost of manufacturing and distributing raw inputs, such as phosphate rock and sulfur, that are heavily reliant on energy-driven extraction and conversion processes.”