Plymouth-based Mosaic Co. plans to slash production of potash, a key ingredient in fertilizer, because of sluggishness in the market.
Fertilizer prices are finally falling, but farmers aren't buying -- yet. And Mosaic expects the situation to get worse before it gets better.
By MATT McKINNEY, Star Tribune
Last update: January 5, 2009 - 10:35 PM
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Unsure Economies Always Have Negative Backlash It's just like what happened to many residents of New England who heat predominantly with oil. With oil prices high and predicted to go … read more much higher, many bought in at $4.50 to $4.75 per gallon fearing much higher prices by January. Now, #2 fuel oil on NYMEX is $1.60. No wonder the farmers are nervous with crop prices dropping like a rock. Close comment Add your own comment Register or log in to comment1 comments | See all Hide reader comments Print this story E-mail this story Save to del.icio.us Share on newsvine Share on Digg
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Star Tribune 100 Executive compensation Non-profit 100 More from Business Myanmar trade surplus shrinks as gas exports fall 6 countries lose Russian gas Euro slips below $1.34 in European trading Report: Sanyo to cut 1,000 workers Europe's services sectors shrank in December For proof that the seller's market of 2008 no longer exists in agriculture -- a market where tractors sold out, prices for farmland defied gravity and commodities zoomed to the stratosphere -- look to fertilizer.
Sales have slowed dramatically in recent weeks, indicating farmers are either waiting until the last minute to buy for the coming season or even forgoing some fertilizers.
"There's been a major correction underway," said Bill Bond, executive director of the Minnesota Crop Production Retailers Association. He's heard that prices have dropped 50 percent or more since fall. "Everybody wants to be able to purchase wisely, but this market has really been swinging as of late."
Fertilizer purchases are running about 60 percent of normal, said a company official at CHS, the grain and energy cooperative.
"There is very good, logical sense behind that," said Mark Palmquist, executive vice president and chief operating officer at CHS.
Prices for grain and oilseeds are down from their blockbuster highs of last summer, meaning there's less money to pay off high fertilizer bills. Global demand for fertilizer, meanwhile, fell off as prices rose, adding to supplies and further depressing prices.
The slowdown appears like a gathering storm in the second-quarter earnings released Monday by Mosaic, the Plymouth-based producer of potash and phosphate, two key fertilizer ingredients. Even though the company reported better-than-expected earnings of nearly $1 billion for the quarter, it warned of sluggish sales and a slowdown in production in the quarters ahead.
"Worldwide crop nutrient sales dropped sharply," in the quarter, said company CEO Jim Prokopanko, in the company's release. He predicted weaker sales through "at least" the third quarter.
While revenue rose 37 percent during the quarter, to $3 billion, sales dropped sharply near the end of the quarter, which closed Nov. 30, Prokopanko said.
The expected sluggishness has the company planning a further cut in potash production of up to 1 million tons by the end of the fourth quarter. An earlier cut of 1 million tons, about 10 percent of the total, was completed last month.
A federal lawsuit filed four months ago in Minneapolis accuses the fertilizer giant of colluding with a handful of other fertilizer companies from around the world to drive up potash prices. The company has denied the allegations.
Phosphate prices averaged $1,083 per ton during the quarter, more than double the year-ago price of $417 per ton, the company said. It didn't release prices since then. Phosphate sales, which make about half of company revenues, fell 46 percent by volume in the second quarter, the company reported.
Mosaic expects prices to drop significantly in coming quarters, it reported.
The price drop has made buying fertilizer much more risky than usual, said one analyst.
"A fair amount of farmers and retailers did buy it last summer, and now prices have dropped substantially. And so, it's like, who's going to be left holding the bag?" said Alan Kluis, a commodities trader.
Some delays brought by bad weather may have saved farmers from buying high-priced fertilizer: A rainy spring last year pushed back farm season and delayed the harvest, interfering with the usual schedule of buying and spreading fertilizers in the fall for the next season's crop.
"It's clear that there wasn't as much anhydrous ammonia put down this fall," said Bond, of the retailers association. "What will occur in the spring remains to be seen."
Fertilizers are necessary in many areas and farmers will eventually need to buy in. Palmquist of CHS said planning decisions that are usually wrapped up by mid-January may stretch into next month as farmers wait until the last minute.
"My concern is the availability of supply towards the tail end of spring season," he said.
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