The Indiana corn grower has postponed buying the
fertilizer he needs for spring planting for only the second time in 35 years,
angry that prices for key nutrients surged more than one-third in the fourth
quarter.
"I haven't bought anything yet," said Georgi,
who normally makes his purchases around the beginning of the year. Prices are
so high "it's ridiculous," he said.
Fertilizer prices jumped last fall on global demand and
expectations for a large increase in corn plantings in the United States. While
those expectations have not changed, the price spike has triggered a buying
boycott by farmers across the Midwest, pushing sales volumes of key products to
their lowest levels since the financial crisis crushed demand in 2008.
But farmers may lose in the face-off unless they place
their orders soon.
Fertilizer 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 U.S. 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 percent 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 fertilizer prices started rising last fall.
Growers believe the price of fertilizer should follow
corn lower, as nearly half the fertilizer used in the United States 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.
At Potash Corp., the world's top fertilizer producer,
reduced demand knocked down nitrogen sales volumes by 15 percent in the last
quarter to 1.1 million tons, the lowest for that quarter since 2008. The
Saskatoon, Saskatchewan-based company has slowed production of another key
nutrient, potash, at mines in Canada due to anemic demand.
The company said demand suffered as buyers "paused
to assess market conditions." It predicted sales will rebound this spring
as long as corn prices support an expansion of plantings.
Mosaic said in January it would cut potash production 20
percent over the following four months due to an oversupply.
Agrium, a smaller player in the fertilizer market,
confirmed buying was muted in the fourth quarter, even though it reported an 8
percent rise in nitrogen sales volumes.
"We expect pent-up demand to continue to
emerge," Agrium said this week.
Farmers' buying strategies have roiled corporate profits.
Potash Corp. is projecting one of its most profitable years ever but issued
first-quarter earnings guidance of 55 to 75 cents that fell short of analysts'
expectations of 84 cents. — Reuters
