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By Staff | Apr 3, 2009

The headline read, “Uneasy farmers wait for fertilizer price drop.” Not all farmers are waiting. One client called me from his truck driving home loaded with urea from the river.

He was bypassing his local fertilizer dealer who was holding his asking prices for fertilizer near last year’s market high.

Fertilizer dealers with expensive inventory held at high prices are a bit like a temporary dam in a river. Now that the spot fertilizer market has declined, the water, or in this case, the business, will go around them treating them like an obstruction.

Farmers are buying fertilizer wholesale from distributors in the Twin Cities or on the river. They are warehousing fertilizer on their farms and buying spreaders to do their own application. Local fertilizer dealers will not only lose the sale, but will also see custom application revenue decline.

Other farmers are avoiding having to pay inflated prices for fertilizer by simply planting more soybeans. That eliminates the need for nitrogen and most farms have fertilizer levels that can skip a year’s application of P and K with no yield consequences on most fields.

Farmers that are buying fertilizer wholesale and storing on-farm have rules to follow. Iowa Ag Secretary, Bill Northey, warns, “Farmers must follow all laws and rules regarding secondary containment, loading and unloading of liquid and non-liquid bulk fertilizers. Fertilizers can be off-loaded directly onto the applicator in the field.

Bulk dry fertilizers must be stored in a totally enclosed building, loading of it into the applicator or a tender truck must take place within the building. If the loading/unloading of dry fertilizer doesn’t take place in one of the locations listed above, then an approved load pad is required that meets the specifications of the Iowa code.

Storage of volumes greater than 5,000 gallons must have secondary containment. A container or a combination of containers with a volume of 5,000 gallons or less is exempt. Loading and unloading pads are required for those facilities with secondary containment.

All secondary containment and loading/unloading pads must have plans drawn by a registered engineer that are in compliance with Iowa code.”

Most farmers doing it themselves will opt for dry or liquid fertilizer and not use NH3 due to the expense and difficulty of storing and handling that product. Another headline read that dealers are discouraged by the “us versus them” mentality. When farmers store corn and the price declines, they can continue to store, hoping that the price recovers, but regardless they will sell at the market price. It should work the same for fertilizer dealers, too. If they bought fertilizer too high, they take the loss, just like farmers do when they market grain. Farmers don’t understand why fertilizer dealers think this equates to an “us versus them” mentality.

I managed my fertilizer risk by “manuring” ground for several years to build soil fertility and then having anticipated the trend of fertilizer prices by applying P and K for this year’s corn crop on soybeans grown last year.

I will buy no P and K in season this year. I bought my liquid Nitrogen for 60 cents per pound. It went a lot higher after that, but it is lower again now. I could be whining like a fertilizer dealer that I paid too much for nitrogen, but I don’t expect a rebate check from them. In the same vein, they should not expect farmers to bail them out either.

I’m sticking to my corn/soybean rotation which saves me 50 pounds of nitrogen on corn acres.

There will be some logistical problems this spring. Less fertilizer was applied last fall in most regions so if fertilizer applications were kept at normal levels, it would be harder for commercial applicators to get the job done this spring.

I think with more farmers doing their own application and less fertilizer being applied that it will work out if spring weather is normal. For farmers with enough acres, savings from buying fertilizer wholesale was large enough to pay for a spreader.

Spring is progressing nicely here in NW Iowa, but it’s still the dead of winter in North Dakota. Some question whether farmers buying direct from wholesale fertilizer suppliers and doing more of their own application is a one time thing or the start of a major new trend.

I suspect interest in buying fertilizer wholesale will decline again when the margin narrows and farmers remember what handling fertilizer is like, but retail fertilizer dealers do not get a free ride. They are not insulated from the market nor should they be.

Taking this one step further, the fertilizer market situation that stinks the worst is for potash. Internationally, potash is mined by only a few companies and it appears more evident all the time that these companies collude with price fixing, acting every bit like an oligopoly.

Despite continued high prices, they are curtailing potash production. They have discovered that they have the market power to gouge customers and are not bashful about exploiting it.

Somehow, this abuse of market power must be curtailed.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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