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fertilizer prices vex farmers

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    Posted on Sunday, February 24, 2008

    As Arkansas farmers prepare to plant their 2008 crops, commercial fertilizer prices are setting record highs because of increased global demand.

    “There’s not much we can do but pay it,” said Michael Richardson, who farms near Holly Grove in Monroe County.

    To produce a high-yielding corn crop — 200 bushels per acre or more, Richardson said each acre on his farm destined for corn production usually requires an annual application of about 220 pounds of nitrogen, 180 pounds of phosphorus and 220 pounds of potassium.

    “The last time I checked, urea [a source of nitrogen ] was selling for $ 500 a ton,” he said, up from about $ 400 a year ago. The prices for phosphorus-based fertilizer and potash, a source of potassium, have risen even more dramatically, with some being sold recently for more than $ 800 a ton.

    Fortunately, for farmers like Richardson, fertilizer prices are peaking at the same time as crop prices are hitting record levels. Futures contracts on the Chicago Board of Trade for soybeans are trading at about $ 14 a bushel, for wheat at $ 10 a bushel and for corn at more than $ 5 a bushel.

    According to the U. S. Department of Agriculture’s National Agricultural Statistics Service, the prices farmers paid for fertilizer increased 32 percent from January 2007 to January 2008. During that same period, the prices farmers received for wheat rose 88 percent, for soybeans 72 percent and for corn 40 percent.

    While fertilizer prices are up, other major farm input prices also are up. Average fertilizer prices in January 2008 were 141 percent higher than the 1990-92 level, according to the USDA. In comparison, seed prices were up 111 percent and machinery prices 91 percent, while fuel costs increased 195 percent during the same period.

    “Historically, high commodity prices have tended to drive nutrient application rates higher,” said Scott Stiles, an agricultural economist with the University of Arkansas Cooperative Extension Service.

    “There’s an incentive out there to push yields up as much as you can,” and fertilizers are one way to do that, Stiles said.

    The demand for fertilizer is relatively “inelastic,” said Harry Vroomen, vice president of economic services at The Fertilizer Institute, a Washington, D. C.-based trade group. In other words, the quantity of fertilizer demanded does not change much with price changes.

    “Fertilizer is a relative necessity because to get high yields you need to apply nutrients,” Vroomen said.

    Jim Crawford, a vice president at Tampa, Fla.-based Transammonia Inc., told people attending the 2008 Arkansas crop management conference last month in North Little Rock that the increase in global demand for fertilizer is the result of changing dietary habits, especially in China and India. Increasing amounts of food and feed are being produced using fertilizers there, he said.

    “There’s just a lack of commodities in the world market and that’s really driving prices,” he said.

    From 2001 to 2006, world nitrogen demand grew by 14 percent, phosphate demand by 13 percent and potash demand by 19 percent, according to The Fertilizer Institute, with China, India and Brazil accounting for the largest share of the growth.

    Another more recent factor tending to nudge fertilizer prices higher has been the growing U. S. demand for corn-grain ethanol. Responding to that demand, U. S. farmers planted more than 93 million acres of corn last year, the most U. S. corn acres since 1944. Much of the increased corn acreage came from land that had previously been planted in soybeans.

    Soybeans, like all legumes, can convert atmospheric nitrogen for their own use. Nodules on the plant’s roots work in partnership with special bacteria in the soil to create nitrate compounds that reduce the need for commercial fertilizers. Corn can’t do this. As a result, the shift from soybeans to corn led to an increase in U. S. fertilizer demand.

    Arkansas farmers produced a record 99. 1 million bushels of corn in 2007, shattering by 83 percent the previous record of 54. 1 million bushels of corn that was produced in 1921.

    The state’s record corn crop explains, in part, a more than 16 percent increase in fertilizer sales in Arkansas, according to State Plant Board statistics. From July 1, 2006, through June 30, 2007, 1, 264, 107 tons of fertilizer were sold in Arkansas, compared with 1, 085, 088 tons during the same period a year earlier.

    The Plant Board tracks fertilizer sales because it collects a $ 1. 20 fee for every ton that is sold, said Jamey Johnson, director of the agency’s feed and fertilizer section. The Plant Board keeps 31 cents of the fee to help fund the operation of its fertilizer sampling and testing program, which helps ensure that consumers receive the amount and type of fertilizer described on the product label. The balance of the fee, 89 cents, is remitted to the University of Arkansas to support the operation of a statewide soil testing and research laboratory in Marianna.

    FERTILIZER IMPORTS Nitrogen fertilizer prices in the United States have been increasing for nearly a decade, said Vroomen, the economist at The Fertilizer Institute. “It initially started with the big reduction in U. S. ammonia production,” he said. Ammonia, a basic building block in the production of nitrogen fertilizers, is made from natural gas. Since natural gas prices began rising in 1999, 26 U. S. ammonia plants have closed their doors, Vroomen said. As a result, the United States now imports more than 50 percent of the nitrogen fertilizer used in this country, he said.

    The United States also imports more than 90 percent of the potash that is used domestically, Vroomen said.

    Given the declining value of the U. S. dollar, these imported fertilizers have become increasingly expensive.

    Higher transportation costs also have contributed to higher fertilizer prices, Vroomen said. Ocean freight, river barge, rail and truck transport fees all have been increasing as a result of high energy prices. Strong demand for transport services, combined with the special security and liability concerns associated with fertilizer shipments, also have led to significant increases in the price of fertilizers. So, what can farmers do to shield themselves from high fertilizer prices ? One strategy could be a shift toward crops that require less fertilization, economist Stiles said. “I think that we’re going to see our biggest acreage increase this year in soybeans,” which don’t need nitrogen, he said. The current price of soybeans “offers tremendous profit potential for half the investment,” when compared with corn, Stiles said. Another strategy is to use fertilizers as efficiently as possible, Vroomen said. “The economic penalties for over- or underestimating fertilizer need or for nutrient loss is much greater with today’s higher prices,” said Paul Fixen, director of research at Brookings, S. D., for the International Plant Nutrition Institute. He spoke last month at the Arkansas crop management conference. Because every farm and field is different, fertilizer management practices must be adapted to the soil conditions, climate, topography and the crops being grown.

    SOIL TESTS AND MORE The University of Arkansas ’ Soil Testing and Research Laboratory last year provided more than 115, 000 free soil-sample tests to help farmers make fertilizer decisions, said Morteza Mozaffari, who directs the lab. A similar number of tests are expected this year, he said.

    Based upon the soil sample, what was grown in the soil last year and what it will be used to grow this year, the laboratory recommends how many pounds of nutrients should be added.

    Overfertilization is spending money on something that you don’t need, Mozaffari said, but underfertilization is worse.

    “If you underfertilize, you are not going to get a good yield, so all the money that you have invested in land rent, seeds, chemical pesticides, irrigation, fuel and labor is lost,” he said.

    Mozaffari said high fertilizer prices may lead some farmers to skimp on nutrients.

    Leo Espinoza, a soil scientist with the University of Arkansas Cooperative Extension Service, is concerned some farmers may be duped by unscrupulous fertilizer salesmen who offer products that claim unrealistic benefits.

    “Farmers should always calculate the price of fertilizer based on the units of nutrient,” Espinoza said. One hundred pounds of urea, for example, provides only 46 pounds of nitrogen.

    To maximize the benefit of fertilizer, multiple rather than single applications often are recommended, Espinoza said. Variable-rate application technologies also can be useful, especially when applying lime to correct low pH soil, he said.

    “Even with the high price of fertilizer, our farmers can still make a good profit because of crop prices,” Espinoza said. “But farmers are concerned that, when the crop prices come down, fertilizer prices are going to stay high.” Soil researcher Fixen is more optimistic about the changes that are likely to result from the increased demand for agricultural products.

    “We’ve entered an era with new enthusiasm for sustainable development of the real potential of modern agriculture to harness the sun’s energy in meeting basic human needs.” Fertilizer basics Plants require 14 essential nutrients in the soil for healthy growth. Three macronutrients are necessary for food production and quality: The “analysis” found on each bag or bulk shipment of fertilizer indicates the percentage of N, P and K that is available to plants. The balance of the fertilizer typically contains micronutrients — such as boron, sulfur and zinc — and filler material. Nitrogen (N ) helps make plants green and plays a major role in boosting crop yields. Nitrogen fertilizer manufacturers capture naturally occurring nitrogen from the atmosphere and combine it with hydrogen from natural gas under heat and pressure to form anhydrous ammonia, a building block for making other nitrogen fertilizers including urea, which is 46 percent nitrogen. The top five nitrogen producing countries in 2002 were China, India, the United States, Russia and Canada. Phosphorus (P ) is present in all living cells and is essential to all forms of life. The phosphate manufacturing process combines the fossilized remains of ancient marine life found in rock deposits with sulfuric acid to produce concentrated phosphorus solutions such as diammonium phosphate or DAP, which is 46 percent phosphorus. The countries with the most phosphorus resources are the United States, China, India, Russia and Brazil. Potassium (K ), which is found in every cell of plants and animals, helps plants grow strong stalks. Fertilizer producers mine potassium, or potash, from naturally occurring ore deposits that were formed when seas and oceans evaporated. Once the ore is brought to the surface, unwanted materials are removed and the product is granulated for application. Most of the world’s potash deposits are found in Canada, Russia, Belarus, Germany and the United States. SOURCE: The Fertilizer Institute Arkansas Democrat / Gazette
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