Fertilizer a top concern this planting season

KNOXVILLE, Tenn. -- Every spring brings its own risks for what is undeniably a risky profession. It seems that the challenges farmers face this year are greater than normal.

KNOXVILLE, Tenn. -- Every spring brings its own risks for what is undeniably a risky profession. It seems that the challenges farmers face this year are greater than normal.

The first challenge is fertilizer. With fertilizer prices headed to the sky last summer, some farmers decided to protect themselves against even higher prices by contracting ahead for this summer's prices. As we all know, prices went south and what might have been a wise decision leaves some farmers facing unusually high input costs. For those farmers, it will take ideal weather and extraordinarily high yields to take some of the sting off those high costs.

But farmers weren't the only ones last summer who booked 2009 fertilizer orders at high prices. Lots of fertilizer distributorships now are holding large quantities of expensive fertilizer. With prices substantially lower, we are watching a stare down between farmers who want lower priced fertilizer and dealers who want to minimize the financial blood bath that is awaiting them.

The longer this stare-down goes on, the greater the risk that there will be a last-minute rush of fertilizer orders by farmers, which may result in supply problems. This will be especially true in those areas that needed every snow-free day last fall just to get the corn crop in. Even if they had wanted to, there was no time to make the usual fall application of anhydrous. That means there will be more acres depending on a spring fertilizer application.

Given the slowness in fertilizer markets, some fertilizer plants have shut down waiting for paying customers to come through the door. If all of the spring orders come in at the last minute, there may not be enough time to get the product manufactured and delivered in time for this spring's corn, rice and cotton crops.


Crop balance

Second, the balance between soybean acres and the acreage for alternate crops like corn, cotton and peanuts is extremely touchy, given what is expected to be relatively low year-ending stock levels of soybeans. Produce too few soybeans and the price heads up the next peak on the roller coaster. Produce an abundance of soybeans and it would not be surprising to see soybean prices below $6, dashing all hopes for a new price plateau.

The ethanol-induced surge in corn acreage in the last two years complicates this equation. Given the yield drag some farmers experienced with corn-on-corn, many farmers are thinking it may be time to return to a 50-50 corn-soybean rotation.

Another complicating factor is the price and availability of fertilizer. It costs a lot less to put in an acre of soybeans than an acre of corn. Will farmers swing to soybeans to minimize their exposure to high input costs?

Then again, depending on the weather, farmers may have little choice of what to plant. Get a stretch of good weather early in the season and corn will go in the ground -- assuming appropriate seed varieties are available. Push the planting date too late and it will be soybeans.

Then again, combine abundant soybean acres with 160-bushel national average corn yields and the price of both may be in the tank.

Marketing concerns

My third concern for the coming season is corn marketing. We still are worried about the impact that index funds may have on commodity prices -- particularly corn -- in the coming months. Though these funds, which hold long positions, have taken a beating since last summer, some still are holding large long positions hoping for an increase in prices.


If they were to decide that prices have no hope for recovery and as a result liquidate their long positions, prices would fall even further than they otherwise might. This also could happen if some of that money were to decide that stocks have hit bottom and now is a good time to get into the stock market.

The other issue we see is the amount of grain that farmers still are holding. The present prices are not enticing farmers to bring corn to town and sell. The present prices seem meager compared with last summer's highs. But we could see lower prices this summer if a large portion of last fall's harvest hits the market in July and August in preparation for the new crop.

Yet, given that we are going into this new production year with adequate, but not large stocks, a serious reduction in coming-year yields could vault prices right back to the levels of last summer -- making those who have not sold much of last fall's harvest look like geniuses.

But going with that possibility smacks more of speculation than a sound marketing plan. In times like these, it is easy to get caught up in the emotions of the markets.

As always, farmers should keep their eyes on the bottom line. After all, covering all production costs (or surviving) is an excellent outcome.

Editor's Note: Ray is director of the University of Tennessee's Agricultural Policy Analysis Center in Knoxville.

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