What a year this has been in agriculture! There have been wide swings in the prices farmers are receiving for their commodities and the costs they are paying for inputs. We have seen record prices for corn, soybeans and wheat this past year. Likewise, farmers have experienced record costs for seed, fertilizer, herbicides and machinery.
The sunny economic picture for agriculture is giving way to some cloudy skies with possible storms in the forecast. Here is the scenario: As corn and soybean prices escalated rapidly this past year, input costs followed suit. The problem is that corn and soybean prices have tanked since their mid-summer highs, yet input costs have remained at high levels. Corn topped out at over $7 a bushel in July—but in early October, it was below $4 a bushel. Soybeans reached $15 a bushel this summer and have since “free-falled” below $9 a bushel. As the rollercoaster ride of commodity prices peaked this summer, the Aheaddownward spiral reached rapid speeds of descent in late September and October.
So what has happened to input costs, such as fertilizers? The unsettling fact is that they have increased rapidly and seem to be holding at high prices. Farmers apply three major fertilizers to their corn and soybeans. These three crop nutrients are nitrogen, phosphorus and potassium, or the scientific symbols of N, P and K. The percentages of these three major nutrients are referenced when a particular fertilizer product is quoted.
For instance, most phosphorus is packaged and sold in the fertilizer product called DAP, which is diammonium phosphate. In this product, there is 18 percent nitrogen, 46 percent phosphorus and no potassium. At the retail level, the price of DAP has increased dramatically this past year. For many years prior to 2007, agriculture fertilizers had a narrow price range, and DAP was priced to farmers between $200 and $300 per ton. By the end of 2007, prices for DAP had increased to nearly $500 per ton. In 2008, the cost for a ton of DAP has reached more than $1,000. In just two years, the price for this input has more than tripled.
Potassium (K), another major nutrient applied to agriculture fields, is primarily sold in the formula 0-0-62 and referenced as potash. There is 62 percent potassium in this product and no nitrogen or phosphorus. Prior to 2007, potash was priced in the $150-to-$200-per-ton range. It reached nearly $1,000 a ton, although it is typically less expensive than DAP. As you can see, potash has more than quadrupled in price during the past two years.
Nitrogen (N) is the third major fertilizer. Grasses, including corn, respond strongly to an application of nitrogen. Typically, farmers in our area apply nitrogen in the form of anhydrous ammonia. Anhydrous ammonia is knifed into the soil by farmers in the fall in a liquid form. It contains 82 percent nitrogen and is usually the most cost-effective method of applying nitrogen to farm fields. For many years, AA prices were in the $200-to-$300-per-ton range. This past year, prices for this product have also topped $1,000 per ton. Once again, a farm input has tripled in cost.
The question is: Will fertilizer prices decrease because the prices for corn and soybeans have basically been cut in half since their summer highs? If prices for corn and soybeans keep trending lower while fertilizer prices and other farm inputs remain at high levels, farmers will likely see some stormy weather in the years ahead. iBi