“Perfect Storm Hits Fertilizer Market, Fertilizer prices down by 50%”

This is the big news of March 2009.   Since last September, wholesale prices of fertilizers have declined dramatically.  In September, fertecon (www.fertecon.com) reported that wholesale prices of anhydrous ammonia at the Gulf of Mexico were over $800 per ton.  In early January, anhydrous ammonia prices were below $200 per ton.  Similarly, diammonium phosphate (DAP) at the Gulf was over $1,000 per ton in September and about $350 per ton in early January.

What happened?  How did wholesale prices fall to a price that was only 25% to 30% of what they were a year earlier?  What happened, of course, was an economic crisis that has pushed down commodity prices, including fertilizer and has tightened credit markets to the point that South America could not purchase fertilizer in many cases.  Also because of the high prices, use of certain fertilizers was down 50% last year, building up inventories in the fertilizer pipeline which also helped to push down prices.  So currently we have prices which are lower, much, much lower than a just one year ago.

But what about the future?  Economic and credit problems will hold back the price somewhat but there are two factors that could push up fertilizer prices in the future.  First, fertilizer costs for planting corn and soybeans will be much lower and this may stimulate farmers to plant much more and as a result push up a demand for fertilizer.  Second, Russia and the Ukraine are making moves to cut back the supply of natural gas to Europe.  If this happens, there is a good chance that natural gas prices and thus nitrogen prices will go up. 

In summary, things are bad economically now and this has driven down the fertilizer prices to where they were two years ago. But there is definite upside risk that the storm will fade, and that additionally, new factors such as government action in the carbon area, will result in driving prices higher. 

How does this effect growing North Carolina Fraser Fir Christmas trees?  It is a good time to try to meet your phosphorus needs, don’t forget to incorporate the fertilizer.  Unfortunately potash is still at an all time high.  Don’t give up on trying to meet your nitrogen needs with clover and other nitrogen - fixing ground cover.  Happy Spring planting. 

1. Unbelievable!  Fertilizer $1200 per ton($30 a bag, $120/acre x400acres=$48,000 dollars) translates into $48,000.00 for enough 18-46-0 to put a 100 lbs of  real nitrogen(normal rate for Fraser Fir Christmas Trees) on 400 acres of Christmas Trees.  Five years ago the cost was $14000.00 dollars for 400 acres ($300 dollars per ton for 18-46-00).   This is an inflation rate of 400% and sounds like we are living in a Third World Country.  This 400% inflation price not only affects Fraser Fir Christmas Trees it affects all food production and is driving food prices throughthe roof and has only begun to be factored into food prices.  This rise in fertilzier cost was caused by using corn for producing ethanol for bio-fuel, rising fuel costs, huge demand from China and India, the past shutting down of phosphorus mines in Florida which are now having a difficult time reopening because of government regulation and then finally a consolidation of fertilizer producers which have no competition to hold prices down.  This perfect storm caused a quadrupling of fertilizer costs if gas had done this we would be paying $8 dollars a gallon for gas.

Cool Springs Nursery a Premium Grower of Fraser Fir Christmas Trees has reacted to this through the roof inflation in two ways.  First we have quit using 18-46-0 and are now injecting 0-46-0 into the ground when we plant the trees at a rate of 700lbs/acre at a cost of $400 per acre this hopefully will supply all the phosphorus that the tree needs for the next 10 years.  We then use 0-0-50 at a rate of 200lbs/acre at $120 dollars an acre, this should be a one time application.  All this would be done the first year in addition to the lime application.  Having done this in the first year we would then use 46-0-0 ($700 per ton for the next 10 years at a cost of a $70 dollars per acre per year or $28,000 per year per 400 acres.

How can we cut these costs even more?  Clover can be depended on to supply 50lbs of real nitrogen each year to Fraser Fir Christmas Trees.  This is half the nitrogen requirements of a Fraser Fir.  If you use White Clover which is one of the best nitrogen fixers it costs $200 per 50lbs.  The rate is 8lbs per acre at a cost of $33/acre.  This $33 dollar per acre clover investment would yield the same amount of nitrogen as a $35/acre 46-0-0 application(half of what is needed per year for Fraser Fir Christmas Trees).  The beauty though is that this clover would continue to supply nitrogen over the next 10 years.   This would save $350 dollars of nitrogen cost over a ten year period.  For a 400 acre farm this would be a cost savings of  $140,000 on the effort to supply nitrogen to trees.

Down side to this scenario is the manual labor to sow this clover.  One worker could do 10 acres per day at a cost of $100 dollars.  The labor to do 400 acres would be $4000 dollars.  The other downside is that there is no guarantee that one will get the rain to make the clover grow after spending a total of $13,000 for white clover for 400 acres and $4000 for the labor to put it down for a total cost of $17,000.  One upside is that this clover may dramatically reduce weed control costs.  In summary this  $17,000 would theoretically save $140,000 over a ten year period  In addition if you put this $140,000 in the bank over this period it would it would grow into at least $300,000 dollars at the end of the ten year fertilization period.

Cool Springs Nursery is very happy that gas prices are down 11% from their highs in July and prices at the pump have decreases the last six days.  Fantastic!  Fraser Fir Christmas Tree Shipping season is three months away.  As we have stated history shows that once oil prices start sliding like they are, they normally continue to decrease for the next year.  Maybe we will get back to where we were a year ago before gasoline prices rose 33% and diesel rose 46%.  Diesel prices are now at a national average of 4.26 per gallon down 39 cents from the summer highs.  Let’s hope this trend continues.  There are some clouds in the sky, literally,  several hurriacane are forming in the Gulf of Mexico and it looks like there is a good chance that they will reach category four.  This is unfortunate for the oil business.  Hurricanes are a mix blessing for Fraser Fir Christmas Trees because when storms hit Louisiana and Florida it is 500-600 miles of flat ground between the Gulf and the mountains of North Carolina and there is nothing to stop the storm untill it hits the mountains.  When Charlie, Floyd and Ivan hit Louisana in 2004 it hit the North Carolina  mountains a couple days later.  One of these storms dumped over 30 inches of water on our fields of Fraser Fir, this is a little too much rain all at one time.  We also had record amounts of Phytophra in Fraser Fir fields the year after  because of all the water from these hurricanes.  Let’s continue to pray that the current tropical storm Gustav does not develop into a hurricane.    In addition  let us pray that oil prices drop along with inflation and that our country and economy will see better times a great leadership going into the future.