US farmers may fail in fertiliser face-off
Chicago, February 13, 2012
While the price spike of fertilisers has triggered a buying boycott by farmers across the Midwest in the US, sales of key products have hit their lowest levels since 2008, but farmers may lose in the face-off unless they place their orders soon.
Fertiliser 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 US 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 per cent 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 fertiliser prices started rising last fall.
Growers believe the price of fertiliser should follow corn lower, as nearly half the fertilizer used in the US 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. – Reuters
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