Tweet
Fertilizer giants face Midwest boycott
The Indiana corn grower has postponed buying the fertilizer he needs for spring planting for only the second time in 35 years, angry that prices for key nutrients surged more than one-third in the fourth quarter.
"I haven't bought anything yet," said Georgi, who normally makes his purchases around the beginning of the year. Prices are so high "it's ridiculous," he said.
Fertilizer prices jumped last fall on global demand and expectations for a large increase in corn plantings in the United States. While those expectations have not changed, the price spike has triggered a buying boycott by farmers across the Midwest, pushing sales volumes of key products to their lowest levels since the financial crisis crushed demand in 2008.
But farmers may lose in the face-off unless they place their orders soon.
Fertilizer distributors, many of whom were burned when demand evaporated in the 2008 price crash, no longer maintain large local stockpiles. That leaves some unable to accommodate a last-minute buying spree, meaning farmers who wait to buy may have to delay plantings or grow something besides corn.
Good weather helped farmers produce a record corn yield in 2009 even after they cut back on fertilizer used to increase output. Now, with U.S. corn inventories at their lowest level since the mid-1990s, any threat that plantings or yield may fall short of high expectations could fuel new fears about supplies and stoke a price rally.
"It's getting very close" to planting time, said Harry Vroomen, vice president of economic services for The Fertilizer Institute. "They can't delay forever."
SURPRISING DEMAND GAP
The buying boycott is the latest sign of a broader trend in which farmers, now flush with cash, are seizing more control over their operations and exerting more market power.
Net farm income jumped 27.5 percent last year to a record $100.9 billion, giving many farmers the flexibility to break free of traditional practices. Many have installed their own storage bins, giving them more leeway in timing the sale of their crops and exacting a higher premium from grain companies.
Farmers cashed in after Chicago Board of Trade corn prices reached a record high near $8 a bushel last July as strong demand drained supplies.
Prices have since fallen to about $6.50 a bushel due to pressure from the euro zone crisis and a larger-than-expected harvest. The timing was bad, as fertilizer prices started rising last fall.
Growers believe the price of fertilizer should follow corn lower, as nearly half the fertilizer used in the United States is applied to corn.
Strong margins for producers of nitrogen-based fertilizers do not make high prices easier for farmers to swallow. Costs for natural gas, used to make nitrogen fertilizer, are hovering near a 10-year low.
At Potash Corp., the world's top fertilizer producer, reduced demand knocked down nitrogen sales volumes by 15 percent in the last quarter to 1.1 million tons, the lowest for that quarter since 2008. The Saskatoon, Saskatchewan-based company has slowed production of another key nutrient, potash, at mines in Canada due to anemic demand.
The company said demand suffered as buyers "paused to assess market conditions." It predicted sales will rebound this spring as long as corn prices support an expansion of plantings.
Mosaic said in January it would cut potash production 20 percent over the following four months due to an oversupply.
Agrium, a smaller player in the fertilizer market, confirmed buying was muted in the fourth quarter, even though it reported an 8 percent rise in nitrogen sales volumes.
"We expect pent-up demand to continue to emerge," Agrium said this week.
Farmers' buying strategies have roiled corporate profits. Potash Corp. is projecting one of its most profitable years ever but issued first-quarter earnings guidance of 55 to 75 cents that fell short of analysts' expectations of 84 cents.
The Indiana corn grower has postponed buying the fertilizer he needs for spring planting for only the second time in 35 years, angry that prices for key nutrients surged more than one-third in the fourth quarter.
"I haven't bought anything yet," said Georgi, who normally makes his purchases around the beginning of the year. Prices are so high "it's ridiculous," he said.
Fertilizer prices jumped last fall on global demand and expectations for a large increase in corn plantings in the United States. While those expectations have not changed, the price spike has triggered a buying boycott by farmers across the Midwest, pushing sales volumes of key products to their lowest levels since the financial crisis crushed demand in 2008.
But farmers may lose in the face-off unless they place their orders soon.
Fertilizer distributors, many of whom were burned when demand evaporated in the 2008 price crash, no longer maintain large local stockpiles. That leaves some unable to accommodate a last-minute buying spree, meaning farmers who wait to buy may have to delay plantings or grow something besides corn.
Good weather helped farmers produce a record corn yield in 2009 even after they cut back on fertilizer used to increase output. Now, with U.S. corn inventories at their lowest level since the mid-1990s, any threat that plantings or yield may fall short of high expectations could fuel new fears about supplies and stoke a price rally.
"It's getting very close" to planting time, said Harry Vroomen, vice president of economic services for The Fertilizer Institute. "They can't delay forever."
SURPRISING DEMAND GAP
The buying boycott is the latest sign of a broader trend in which farmers, now flush with cash, are seizing more control over their operations and exerting more market power.
Net farm income jumped 27.5 percent last year to a record $100.9 billion, giving many farmers the flexibility to break free of traditional practices. Many have installed their own storage bins, giving them more leeway in timing the sale of their crops and exacting a higher premium from grain companies.
Farmers cashed in after Chicago Board of Trade corn prices reached a record high near $8 a bushel last July as strong demand drained supplies.
Prices have since fallen to about $6.50 a bushel due to pressure from the euro zone crisis and a larger-than-expected harvest. The timing was bad, as fertilizer prices started rising last fall.
Growers believe the price of fertilizer should follow corn lower, as nearly half the fertilizer used in the United States is applied to corn.
Strong margins for producers of nitrogen-based fertilizers do not make high prices easier for farmers to swallow. Costs for natural gas, used to make nitrogen fertilizer, are hovering near a 10-year low.
At Potash Corp., the world's top fertilizer producer, reduced demand knocked down nitrogen sales volumes by 15 percent in the last quarter to 1.1 million tons, the lowest for that quarter since 2008. The Saskatoon, Saskatchewan-based company has slowed production of another key nutrient, potash, at mines in Canada due to anemic demand.
The company said demand suffered as buyers "paused to assess market conditions." It predicted sales will rebound this spring as long as corn prices support an expansion of plantings.
Mosaic said in January it would cut potash production 20 percent over the following four months due to an oversupply.
Agrium, a smaller player in the fertilizer market, confirmed buying was muted in the fourth quarter, even though it reported an 8 percent rise in nitrogen sales volumes.
"We expect pent-up demand to continue to emerge," Agrium said this week.
Farmers' buying strategies have roiled corporate profits. Potash Corp. is projecting one of its most profitable years ever but issued first-quarter earnings guidance of 55 to 75 cents that fell short of analysts' expectations of 84 cents.
Comment