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Simple strategies may help in buying fertilizer

Posted Friday, November 26, 2010, at 9:08 AM

Fertilizer prices are expected to be more volatile than in the past due in part to the United States changing from a fertilizer manufacturer and exporter to a net importer. Basically, fertilizer production has moved out of the United States. This change from exporter to importer, according to Phil Kenkel, Oklahoma State University Extension economist, puts price at risk of supply disruption, transportation cost and foreign exchange rates. Natural gas price also may play a role since it is the second most volatile commodity in the world and accounts for 90 percent of nitrogen fertilizer production. In addition, higher world commodity prices may mean increases in fertilizer demand and price.

U.S. crop prices and fertilizer prices may not be correlated. We have had low commodity prices and high fertilizer prices. Since 2008 fertilizer prices have been a roller coaster and the shift to bioenergy crops have help to fuel the volatility according to Kenkel. Fertilizer accounts for about one-third of total crop production costs.

There are some strategies to reduce fertilizer price risk.

1.Forward pricing is an option but may not always be practical because of purchase minimums and other limitations.
2.Records indicate that the best time to buy urea is the first week of July. Early April is the worst time to buy. This timing is out of sync with Corn Belt crop timing. This does not always work as in 2008 when the first week of July was the worst week to buy.
3.Systematically buying fertilizer does reduce price risk by 5 percent. Buying at the worst time increases price by 15 percent and risk by 55 percent.
4.Growers may also reduce risk by switching nitrogen forms, application timing (within or between years, from fall to spring) for example.
5.Soil test can be very useful in managing fertility for example to drop back to applying the minimum amount to prevent yield loss or to maintain soil fertility at the optimal level. Growers may consider applying less than the recommended fertility rates if:

-- Fertilizer to commodity price is out of sync.

-- Land tenure is uncertain

-- The fertilizer supply chain is disrupted

6.Crop rotation may also help growers to manage fertilizer rates.

Fertilizer prices are likely to remain volatile. A systematic purchasing strategy and flexibility with timing and product may help producers manage the risk.

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As our local University of Missouri Agronomy Extension Specialist, Crook has been writing a column for the print edition Agriculture page for the past three years and we will now be sharing it on our web version. Crook has a bachelor and masters degree in agronomy from University of Missouri and received his doctorate in Agronomy from Kansas State University. He was in soybean variety development research for 22 years for various seed companies and has been Saline County's agronomy specialist for 10 years.
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