After increasing for six consecutive years, U.S. fertilizer prices are finally beginning to fall at the wholesale level, according to a report by the American Farm Bureau Federation.

"Up until very recently, fertilizer prices were astronomical at both the wholesale and retail level," says Terry Francl, senior economist for the Washington, D.C.-based group. "Fertilizer producers were clearly reacting to record commodity prices, and companies priced their products accordingly."

Now that prices for corn, soybeans and other commodities have declined 50 percent or more from summer peaks, wholesale fertilizer prices have dropped as well. But retail prices have yet to fall.

Francl says the wholesale fertilizer price drop began about two months ago, generally after the time farmers applied fall fertilizer to their crops.

Wholesale prices for anhydrous ammonia in the Corn Belt, for example, have declined from more than $1,000 per ton to about $500 range.

Urea has dropped from the mid-$800 range to the mid-$300 range. Diammonium phosphate—DAP—has declined from $1,100 to $600 per ton. The decline in potash prices has been less notable, dropping from slightly more than $900 per ton to slightly more than $800.

"The reasons for the decline involve much more than just crop prices," Francl said in a news release. "Natural gas prices have declined from more than $11 per million BTUs (1,000 cubic feet) to around $6 per million BTUs. Natural gas is the primary input utilized to manufacture anhydrous ammonia and typically accounts for 80 percent to 90 percent of all input costs." 

Potash prices appear to be retreating much slower, if at all, because more than 90 percent of the potash used in this country is imported mostly from Canada but also from some European and former Soviet Union countries.

Potash prices are therefore more affected by changes in the value of the dollar, which has declined recently, meaning that it makes imports more expensive.

Francl says fertilizer dealers with large, high-priced inventories could be in a difficult position this springsince by farmers appear to be planning to plant less fertilizer-intensive crops, such as corn and cotton, and more soybeans, which don't use nitrogen at all. As legumes, soybeans actually add nitrogen to the ground.

To compete, fertilizer dealers will have to "cost average their prices down" by averaging their current high priced inventories with lower-priced future inventories, Francl says.

"Farmers would be well-advised to hold off their spring purchases for as long as possible," he says. "The inherent danger in such a strategy is that a spring rush may cause supply bottlenecks. However, nitrogen products can be applied to row crops in the form of side dressing later in the spring."

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