Managing Risk Through Volatile Fertilizer Markets
by: Steven Betts, AgraCity Crop & Nutrition Fertilizer Manager
The definition of volatile according to Webster’s Dictionary is: “characterized by or subject to rapid or unexpected change.” This truly defines the fertilizer markets for the past eight years. There are many factors that contribute to volatile fertilizer prices throughout the year. Global trading of fertilizer has the greatest impact on pricing volatility.
Nitrogen production occurs where adequate and low cost natural gas supplies exist. Urea is the primary product of trade, since it is the easiest and safest to transport. The United States imports nearly 70% of its annual needs of which nearly half being imported from the Middle East. Canada is very similar to the US and relies heavily on imported product. This being said, we must compete for our tons with the rest of the world on a price bid basis. With new domestic and international production capacity coming on shortly, all markets are awaiting the impact of the new capacity. UAN is also being imported from Trinidad and Eastern Europe. Additional UAN production is also coming on line and will impact UAN pricing.
Phosphate production is one area that the United States is quite proficient in producing its own needs. Mosaic, PCS, Simplot and Agrium are the largest domestic producers. Production is distributed throughout the US by rail, truck and barge. The US exports production to other world destinations out of the Southeast US and the Gulf of Mexico. Some imports do enter the US via ship and are then distributed by barge and rail. Product is shipped to where the highest prices can be obtained. Canadian phosphate needs may be better served by importing product from China and/or Russia.
The majority of the US potash supply comes from Canada. In recent years, imports have made a greater impact on US supply and pricing. Once Genesis Grain & Fertilizer is up and running, we should be in a competitive position to offer product to our members.
So how do we manage price risk in a global market? At AgraCity, our primary tool is to back to back sell all nutrients throughout the entire year. By back to back, we mean purchasing fertilizer products directly for our FNA members without owning or taking a position on unsold product. We monitor all price impact factors on a daily basis throughout the year to try and relay the best buying opportunities to our members.
From the Grower/Producer side, in an ideal world, we would suggest buying in layers throughout the fertilizer year vs buying all of your fertilizer needs all at one time. Selling bushels of grain to off-set input costs is a great risk management tool. This too will allow a dollar cost average for nutrient input costs. This may not always be practical due to logistics, financial positions, on cropping intentions.
There is seasonality to pricing that presents buying opportunities for the channel. These opportunities generally coincide with the cropping year. For example, the early summer months are when fertilizer producers release their summer/fall fill programs. This would pertain mainly to ammonia, phosphates and potash to be applied in the fall. There are exceptions to this with UAN and starters. The summer/fall program for UAN and starters are for the upcoming spring application. The next buying window would be for in-season spring applications. This would include all macro and micro nutrients needed to complete the fertilizer needs for the intended crop. Urea is the most volatile commodity and moves up and down in price throughout the entire year. In my past 30 years of fertilizer experience, urea has presented buying opportunities in September through November and then again in the later spring months.
All pricing of macro nutrients can be volatile throughout the year. Our intent is to provide our members with the most current information available so as to allow them to make risk management based buying decisions. What we need from our members? Accurate forecasts of specific product needs, how much, and the timing of delivery.
By juggling all of these factors, our fertilizer desk will be able to present buying opportunities to our FNA members which will maximize the opportunity for farm profitability.
Farmers of North America is hosting an important conference call: Managing Risk Through Volatile Fertilizer Markets and Announcing Genesis closes construction tenders on Belle Plaine Fertilizer Supercenter.’
Robert Friesen, FNA V.P. Goverment Affairs
Steven Betts, AgraCity Crop & Nutrition Fertilizer Manager, North America
Monday, August 17th 8:00am Saskatchewan/Alberta time
Tuesday, August 18th 8:00am Saskatchewan/Alberta time