CHICAGO -- U.S. farmers will likely use less nitrogen fertilizer this season with the cost sky-high, even though the price of natural gas, the key ingredient to make it, is down 40 percent from last year.
The reduction in usage should hit corn plantings more than other crops, since nitrogen is the key booster of corn yields.
"What we're seeing this season is a reduction in rates," says Ray Carpenter, senior vice president of agronomy for Farmers Cooperative in Ames, Iowa, referring to nitrogen bookings. "Reduced rates mean reduced yield."
Fertilizer's base feedstock, natural gas, is about $2.716 per million British thermal unit, down from $4.536 last year. The price of anhydrous ammonia -- a popular nitrogen fertilizer -- remains high, about $650 to $700 per ton.
The disparity between the steep cost of fertilizer and the lower cost of natural gas is because fertilizer inventories remain thin as a result of 2014 shipping backlogs and because the industry is controlled by a few big players.
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"The reality is input costs don't come down as fast as the break-even price," says analyst Sterling Liddell of Rabobank.
Crops require nitrogen, potassium and phosphorus, with corn the single biggest user of nutrients. It takes roughly one pound of nitrogen per acre to yield one 56-pound bushel of corn.
Crop specialization has made corn acres, planted year after year, increasingly dependent on nitrogen.
"I don't want to over-spend," says Iowa farmer Mark Recker, who will begin fieldwork soon. "I'm debating how much side dressing I want to do, splitting applications. I may back off, compared to previous years."
Recker, an Iowa Corn Growers director, adds, "When you had $6 corn, it drove me to put on a little higher nitrogen to get higher yields. Now you look at it much more economically."
The U.S. Department of Agriculture projects farm gate prices for corn this season at $3.50 to $3.90 per bushel, versus $6.89 two years ago. Soybeans are projected at $9.45 to $10.95, versus $14.40 in 2013.
Liddell says if farmers plant 1 million to 2 million fewer corn acres this spring, anhydrous ammonia could fall $50 to $100 a ton.
Some analysts are more bearish.
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"The cost of gas and ammonia right now is around $100 a ton. They're selling it in the Midwest for $600 a ton," says one fertilizer industry source.
"So there's a lot of room for prices to come down. You could see a 40 to 50 percent drop by the end of the year."
