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Analyst: Fertilizer outlook positive

By Staff | Jun 28, 2012

Is now the time to lock in fertilizer inputs for the fall of 2012 or even the 2013 planting season? Keep an eye on the markets in the next month or so, says one ag economist.

“During the past year, fertilizer prices have been relatively stable,” said Matt Erickson, an economist with the American Farm Bureau Federation who participated in the June 20 “Energy and Fertilizer Update Webinar” hosted by the Iowa Farm Bureau Federation.

“Locking in fall fertilizer needs this summer could be a good opportunity,” Erickson said, “although it will likely be a narrow opportunity.”

Fertilizer prices will be influenced by the 95.9-million-acre question, Erickson said, who noted that the 2012 corn crop has been projected to be the largest crop since 1937-38.

More corn acres equal higher demand for fertilizer, and fertilizer prices are influenced by energy prices. The good news?

A warm, 2011-2012 winter meant less demand for natural gas, and Erickson expects natural gas prices to be relatively inexpensive, due to ample inventories.

While the U.S. Energy Information Administration expects natural gas inventories to decline in 2012-2013, there was still plenty of natural gas in storage in early 2012, Erickson saidd. This has been a plus for ethanol plants, since natural gas is an ethanol plant’s second largest input cost.

“With ethanol, the name of the game is expensive corn and cheap oil, and it has been a burden to maintain margin levels. The current situation with natural gas has been helping ethanol plants manage their bottom line.”

Diesel prices stable

The outlook for oil, gasoline and diesel is a slightly different story than natural gas.

“With oil, uncertainty reigns,” Erickson said.

Consumers have had little relief at the gasoline pump in recent months. While Erickson said there was a point when he paid $4.50 per gallon for gasoline in the Washington, D.C. area, EIA data is predicting gasoline at $3.50 per gallon in 2013.

Diesel fuel prices are expected to remain stable in the months ahead. The average price per gallon in 2011 reached $3.84 andis currently averaging $3.90 per gallon in 2012.

Diesel is expected to average $3.87 in 2013, Erickson said, even though recent diesel prices are far above the five-year average.

“When you look back just three years ago, diesel prices have gone up significantly,” Erickson said, who noted how “pricey it is” to fill a 270-gallon tractor fuel tank.

In 2009 when diesel was $2.18 per gallon, a fill cost $588. In 2012, with diesel at $3.74, the bill soared to $1,010 – a 72 percent increase.

Three key questions

Barring any unexpected events, Erickson expects oil prices to hover around $95 to $100 per barrel in the near future.There are three key questions to ask, however, when analyzing the energy markets, including:

  • What will happen with the U.S. economy? It’s clear that the government is not doing much to manage the national debt, said Erickson, who noted that the debt totaled $14.2 trillion in August 2011 and has soared to $16.2 trillion.
  • What will happen with Greece, Spain and the rest of the European Union? It’s not clear whether the EU will collapse. Time will tell, Erickson said.
  • What will happen with Iran? All eyes are onIran, which is the No. 2 oil exporter in the global marketplace, Erickson said. China is Iran’s biggest oil customer.

“Iran’s nuclear program is very concerning to me,” Erickson said. “Keep an eye on this and these other key factors, and watch for opportunities to lock in some of your fertilizer or fuel inputs.”

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