Fertilizers and Fuels: Prices Drop
March 12, 2009 Commodities prices. Fuel prices. Fertilizer prices. Relativity reigns in cotton’s world.
As we go to press on Monday, January 19, the December ’09 contract on the New Cotton Exchange was in the midst of a mild rally and stood at 54.57 cents-per-pound after bottoming out at 45.25 on November 21 of last year. Last March, a new life-of-contract high was set at 101.5. The pure definition of market volatility …
Obviously prices have been a roller coast of fun (sarcasm intended). But so have fuel and fertilizer. Information from the Energy Information Administration shows that retail diesel prices hit $4.67 per gallon on June 2 of last year. Again as of this date, retail diesel in Memphis was 2.11. February crude-oil futures have fallen from historic highs in the mid-$140 per barrel range all the way to the mid-$35 range – a four year low.
Who could see any of those prices rising that high and then dropping that low in that short of a time span?
Reduction in fuel-cost inputs ― or any energy product for that matter ― is easily explained and really doesn’t have to be.
As for fertilizer, the grower-price for urea has fallen $100 per ton over the past year, and DAP (18-46-0) dropped from $985 to $430. Ironically 32% nitrogen has risen $75 and the reasons are vague as to why that has happened. Some blame barges of 32% being iced in on the Mississippi River, but grower demand would contradict that to a large degree.
There is no general consensus among industry sources as to what the price of nitrogen fertilizers will be this spring. Most dealers have uncomfortably high inventories due to severe drops in wheat plantings across the nation. In the Mid-South, Arkansas dropped 61%, Mississippi 50% and Louisiana 35%. For the Mid-South as a whole, wheat acreage is down 53%. In the Southeast, Georgia’s acreage fell 29%, North Carolina 18%, South Carolina 27% and Alabama had no change. For the Southeast as a whole, acreage dropped by 23%.
High Inventories, Low Demand
Those inventories have dealers across the nation sweating by the gallon because many have nitrogen fertilizers bought at high prices last year when they reasonably expected that demand would be as high or higher this year. So their decisions for this spring could be difficult ones: Do I sell now and take my lumps? Do I price my product based on my cost only to have my competition undercut me? Or do I try to hang onto inventories and hope for a run up in demand?
Brokers who have been looking for the price bottom before taking positions will have their best luck in Texas, where cotton acreage is stable. In the Mid-West, corn acreage is less stable because of the expected increase in soybean acreage, but stable enough to position product there.
“Unfortunately, we are facing a continuation of the purchasing and application pause that we experienced during the 2008 fall plow down,” says Dan Reynolds, Helena Chemical Company’s manager of fertilizer supply and logistics. “The economic crisis could not have happened at a worse time for our industry because producers, traders, distributors, retailers and farmers all need the ability to split-apply fertilizer in the fall as well as spring to make it logistically possible to cover the required acres with the limited amount of application equipment that is available.”
Catch 22
“Purchasing has been a ‘Catch 22’ for anyone involved in the fertilizer business since September 2008,” he continues. “And the weather set the stage as it dictated the fertilizer types that were the choice of application.”
To add to crop-mix uncertainties, growers may wait until as late as March before making acreage decisions. The price of soybeans is in the front of most every southern grower’s mind and more soybeans means less nitrogen demand.
“To make matters worse, we have no firm indication what crop mixes or acres will be planted per region.” Reynolds says. “As the fertilizer producers shutter production to control inventories, we are concerned that it will be logistically impossible for those plants to come back on-line in time for the tons to be positioned in the right places and in the right areas to meet the demand.”
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