Nutrient Management Podcast episode: “Fertilizer prices and supply chain issues”
November 2021
University of Minnesota Extension
Written transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio before referencing content in print.
(Music)
Paul McDivitt:
Welcome back to University of Minnesota Extension's nutrient management podcast. I'm your host, Paul McDivitt, communications specialist here at U of M Extension. Today on the podcast, we're talking about fertilizer prices and supply chain issues. We have four guests on the podcast today. Can you each give us a quick introduction?
Brad Carlson:
I'm Brad Carlson. I'm an Extension educator. I work out of our regional office in Mankato. I work statewide, part of our water resources group. I have been talking a lot to farmers recently about how they're going to be adjusting their management relative to fertilizer price.
Jim Carlson:
Yeah. Paul, I'm Jim Carlson. I'm the VP of Agronomy for United Farmers Co-op in south-central Minnesota.
Russ Quinn:
My name is Russ Quinn. I'm an ag market reporter for DTN/The Progressive Farmer based out of Omaha, Nebraska. One of my areas that I watch closely is we track retail fertilizer prices mainly across the Corn Belt, and we've done that since November of 2008. In addition to all that, I also farm about 35 miles north of Omaha with my family. We grow corn and soybeans, and we also have a small cow/calf herd.
Josh Linville:
Hi, I'm Josh Linville. I'm the director of the fertilizer division for StoneX Financial Inc. FCM Division. I'm here in Kansas City, Missouri. I oversee the fertilizer group.
Paul McDivitt:
Great. So starting off, where are fertilizer prices right now and how do they compare to the recent past?
Russ Quinn:
Well, I guess I'll go ahead and start here. We, at DTN, track the eight major retail fertilizer prices, that'd be DAP, MAP, Potash, Urea, 10-34-0, Starter, Anhydrous, 28%, and 32%. Right now, with our retail prices, and we get these prices from retailers mainly across the Corn Belt, we have about 300 retailers that'll give us prices. Some will give us prices every single week. Some will give us once a month, then somewhere in between there is everybody else. But looking at the current retail fertilizer prices that we have, four of the eight major fertilizers are at all-time highs right now.
Russ Quinn:
Leading the way would be Anhydrous. The national average price that we have for Anhydrous is at $1,113 a ton. Then UAN 28 and 32 are both at all-time highs as well. UAN 28 is currently at $545 a ton and 32% is at $604 a ton. The other fertilizer that's currently at an all-time high, as far as our dataset is, is Urea and Urea is at $820 a ton right now. The other four fertilizers, they're not exactly low either, but they're not quite at all-time highs. Potash is at $750 a ton. MAP is at $900 a ton. DAP is at $814 a ton, and then 10-34-0 starter is at $702 a ton.
Paul McDivitt:
Jim and Brad, what are you guys seeing in south-central Minnesota in terms of prices and supplies?
Jim Carlson:
Yeah, this is Jim. So I'm just looking at my price sheet as he was going through those numbers and they coincide pretty close to where we have our current prices out. Now, I think there's sometimes a lag between, Russ, what's reported and really what's happening, especially when the markets are moving so fast. The challenges with the retail business is normally retail prices are based off what the individual retailer buys at, so it's not necessarily always off replacement cost. But in these cases, most of the people that lived through 2008 when the same dynamic happened, different factors causing it, but most of the people that lived through that are being very cautious now.
Jim Carlson:
So, they're following replacement as close as they can, but still trying to be fair, in our case of being a co-op, to their patrons. So I think, Russ, you're very close on those numbers. Ammonia today in southern Minnesota is going to be $200 or $300 higher than that, though, if you're buying off replacement. So most of us have moved through our contracts that we have, and now we're just buying spot and back to backing. If we're doing any additional sales, then you're in the $1400 to $1500 range, for the most part now, which is a little scary.
Brad Carlson:
Yeah. I wrote an article last week, just looking at, I think folks are probably familiar with the use of price ratios between the price of nitrogen and the price of corn for making rate decisions. So it's germane to discussing management of nitrogen to be talking about the price. So I did some calling around and that is what I found was anywhere from $1250 to $1400 and so it doesn't surprise me that it's advanced a little bit. The other nitrogen types that doesn't surprise me either, although we do not recommend applying those types of fertilizer in the fall, and therefore I didn't bother to inquire what those prices are, because that really wasn't going to be part of our conversation.
Brad Carlson:
But I guess I generally do have concern about where we're going to be at with all this stuff come springtime. Just simply on account, I guess it's worth reminding the listeners that anhydrous ammonia is the base stock for the manufacturer of the other types of nitrogen fertilizer. In most cases, your anhydrous is always going to be the cheapest because the other types are going to be processed. Beyond that, I think the exception to that would just be some circumstances where, maybe, somebody had purchased something ahead of time or pre-priced or some peculiarity to the situation. But just under a straight-out normal circumstance, anhydrous is always going to be the cheapest of the nitrogen fertilizers.
Russ Quinn:
Well, like I said, we farm and I was in line one day at the elevator earlier this week and talked to a friend of mine that farms outside of Omaha, and he had talked to the local retailer and he had said that the local price was over $1,200 a ton. So I think Jim is right in the fact that sometimes it takes a little bit for our prices to catch up or a week or two, maybe three behind, at certain points of the year, especially as the market moves either way, up or down, although for the last year it's just been up. But sometimes it takes a while for the retailers to report to us what the actual price is.
Jim Carlson:
We always have to keep in mind, though, that most of the stuff that's been done already was contracted some time earlier. So if anybody comes in and buys a ton today, or a volume of whatever product it is today, it's higher than if they contracted last summer for the fall that just happened. So I would say most of the ammonia that went on this fall in my market was in the $700 and $800 range.
Brad Carlson:
It's worth reminding farmers that there is basis on fertilizer also, that the product is delivered from a factory or at a port. There is cost for transportation and shipping that, and the farther you get away from where that was received or manufactured, the price is always going to be higher. So where we're at in southern Minnesota, we're just farther away from that production than folks are in Missouri and Nebraska.
Paul McDivitt:
So why are fertilizer prices so high right now?
Josh Linville:
You look at nitrogen. We've had China pulling out of the marketplace. They're a major exporter. We've got European natural gas prices, which are sky high. They're normally single digits and they're 25 MMBTU. That shut that down. You've got Russia putting caps on exports. You've got Egypt putting caps on exports. We had Hurricane Ida. Go back to the derecho event of fall that made grain prices go up.
Josh Linville:
When we look at it today, the other side of it is a lot of people are drawing correlations to 2008, and that's a perfect thing to do. We learn from history. We don't want to repeat the sins of the past, but the main difference we want to know between 2008 and 2021, '08 was demand-driven. There was never a period in time when you couldn't find product. Now, your price might go up 10, 20, 30 bucks a ton in a 24- hour period, but you could still find it. This year, this is supply-driven. This is extremely tight.
Jim Carlson:
It'd be also good to add in just the fact of the energy cost. You mentioned the natural gas, right? Natural gas is higher here as well, so cost production for domestic producers is up as well. Well, actually, if you look at coal prices in China, that's a big factor too. It seems weird, but a lot of the production in China is driven by coal, is produced using coal. So all those little things, like you said, perfect storm, add up to what's going on here. Energy prices is primary the reason why, though, that some of these countries are limiting exports because when energy prices go up, they either close plants down or reduce their production rates, or whatever. I'm guessing here, but I'm guessing China right now is probably 50% to 55% of their normal production rate on Urea. If China's running at 90%, let's say they're probably producing 200,000 tons a day. So just calculate that out. That's a lot taken out every day and they're not exporting.
Brad Carlson:
So just out of curiosity, you guys, I'm maybe putting you on the spot, but what percentage of our, I guess, specifically the nitrogen fertilizer is being produced domestically. I know we still have a fair amount of capacity for anhydrous ammonia production here, versus how much is coming in through the ports.
Josh Linville:
So it depends on the product, of course, right? But when you look at the Urea side, we're still a net importer of, I think we've got our number this year, we started off at 5 million tons before Hurricane Ida, Weaver plant issues, Port Needle plant issues, Oklahoma plant issues. We've moved that closer to a 5.25, 5.5 million ton import to meet our demand in the spring, based on 91 million acres of corn and wheat and soybean, where we've got the mix right now. UAN, we can be self-sufficient. Now, the last few years, we've actually imported 3 million ton and we've exported a million ton.
Jim Carlson:
It's truly a global market. I don't care what product you're talking about, but nitrogen for sure, Urea is the biggest traded global fertilizer there is.
Brad Carlson:
So some of the trouble with ports that has been all over the news, and most of that is related to container ships and merchandise, is this having any ripple effect into fertilizer imports too? Is there reason to suspect that beyond just simply global supply-demand that actually physically get it here is going to turn into a problem?
Josh Linville:
I am not foreseeing our having an issue. I think, ultimately speaking, North America is a very popular spot to send fertilizer because we're a very safe haven as far as paying our bills. Everything international fertilizer is trade on USD until it reaches internal to that country. So we're a destination people want to go to. I think it's going to get tight. I think this India tender's going to go a long way in wiping out a lot of the excess world inventories through January 1st. Then, so world producers going to start January 1 saying, "I can sell what I produce. I'm not long on a lot of product," and at the same point, the world wakes up. You've got the U.S., Canada, Brazil, Europe, India, Asia, all these locations all start stepping up and buying. We get into a pattern where all of a sudden, it becomes like eBay, if you will.
Josh Linville:
Every coal producer can sit there and say, "Hey, I've got a January 15 loader, who will give me $950? Who's going to give me $960? Who's going to give me $965?" It's going to go to whoever the best destination is, the best net back. But I think, ultimately speaking, we will be able to afford it.
Jim Carlson:
What the prices are today is what it's going to be for spring, because if you wait and try to price something in April, first of all, you don't know if you're going to get it. Secondly, it could be priced higher, but you have no idea if you're going to be able to get the product or priced lower, sorry, but you have no idea if you're going to get the product. So at some point, this whole market's going to change, right? I've seen some signals that start to show that maybe there'd be a turnaround in the next number of months where this could be changing, but I never thought it was going to get to where it is today either. So I can't predict that, but signals are what we watch for.
Paul McDivitt:
Can you talk a little bit about the price ratios and why that's an important metric to watch?
Brad Carlson:
Well, that's the basis of how nitrogen recommendations are made across the Midwest in the majority of the Corn Belt states, at least from Minnesota down through Missouri and then going eastward. It just simply is looking at the price of nitrogen on a per-pound basis versus the price of corn. So the land grant universities that make fertilizer recommendations have tables based on those price ratios. The tables that have been in place now for about 15 years, and I think is pretty much every state, has response curves based on a 0.05, a 0.10, a 0.15 and 0.20 price ratios. So given that current price of anhydrous, with where we're at, here in Minnesota, you're looking at roughly speaking $0.80 per pound of nitrogen.
Brad Carlson:
In Minnesota, we recommend that you add a nitrification inhibitor to that, and the price of that is on a per-acre basis. It's regardless of how much nitrogen you put on, so the actual price of that per-pound fluctuates based on your nitrogen rate, but roughly speaking, it's about eight-and-a-half cents. So that puts our price in at about 90 cents-a-pound for nitrogen right now, that's going on the anhydrous is going on this fall. I had checked spot delivery at a local ethanol plant and they had corn at $5.45. They actually didn't have much of a difference when you looked at their futures contract out the next nine months or so. The price was fairly similar, so that put us at a price ratio of 0.16, or pretty close to that 0.15 price ratio. Historically, over the last 15 to 20 years that we've been using this MRTN method, we have seen price ratios holding in at about 0.10.
Brad Carlson:
Anytime they deviate from that, they tend to correct fairly quickly. So we are over that point right now, but this is not unprecedented territory from a price ratio standpoint. From a fertilizer price overall per-ton standpoint, yes, we're at record highs, but as far as its relationship to corn price, it is not necessarily out of the question. So at least on the Minnesota side, if we look at the difference between a 0.15 price ratio compared to the 0.10, which is traditional, you'll see that the rate recommendations go down about 15 pounds an acre. It's not real significant, but it is some, and a reminder that the states that use the MRTN method that we have a rate window, and that is on the economic side, based on our research is plus or minus $1 of profitability. So that 15 pounds keeps you right in the same window, basically, that you were at before. It just slides it down a little bit and so, certainly, individual farmers need to be just assessing where they're at with that.
Paul McDivitt:
How are farmers reacting to the higher prices and fertilizer availability concerns?
Jim Carlson:
I think different than years past. I think the social media, just media in general, I think they're probably more aware of it today than they have been in the past. We've been getting a lot of questions. Normally, I shouldn't say normally, a lot of the times we have to go bring it to them. It feels like a lot of them are bringing to us right now, so I think that's really good. Everybody's paying attention, so I think that's a plus. The reaction that they have can sometimes be somewhat emotional, but I believe as growers continue to be become more sophisticated, I don't know if that means they're larger or whatever else, but they start to look at it more as a business, as Josh was saying, "How much is it going to cost me for my inputs to get what I need to get out it?"
Jim Carlson:
For the most part, I think it's been pretty calm thus far, but pre-pay for next spring is just starting, right? So we're just starting to book those tons or those acres for spring and I would say that the orders are starting to come in. So the ones that are paying attention, they're coming in. We haven't noticed any trends yet, but just from the emotional side of it, my guess is, this is my total guess at this point, you're probably going to find out that if you're going to pay 100% or more of what you paid last year for a ton of fertilizer, they're all going to use nitrogen, but you might cut back a little bit on the P and K.
Jim Carlson:
Now, it all depends on where you're at in the country. For us, over 80% of our P and K gets put out in the fall. So the guys that did that are sitting pretty good. Now they can concentrate on getting their nitrogen, though, if they need more nitrogen for the spring, get that taken care of. So that's encouraging and, obviously, the stuff that they did this fall is priced differently than the stuff that guys are going to have to use in the spring. So in general, though, I think that right now, it's unknown what the response is going to be. We can make guesses. Every guess we make we tend to be surprised. So as an example, we were so dry this summer, yields are going to be horrible. Everybody was surprised how good it was.
Russ Quinn:
Yeah, I would dovetail what Jim said, from talking to farmers and retailers like I do nearly every week. I talked to a handful of farmers, well, probably a month ago roughly now and we talked a little bit about what these higher prices have done to their plans. For the most part, I think the majority of the guys that I've talked to were going to stay on course, but there was some adjustments that was probably going to be made in some areas for some operations. What Jim said, it is probably going to be P and K. It's going to be P and K that is cut back. It's probably going to be farms that if they soil test every year and the last time they soil tested, it was above the maintenance level, it can go a year without applying P and K.
Russ Quinn:
That's probably going to be, going forward, what some farmers, how they tighten the belt, if you will, for their fertilizer budgets, say, they're just going to try to get by here and there without having to put P and K on some of their fields. But as far as nitrogen goes, I don't think there's going to be anybody, as far as like what Jim said, the yields were good. If you start cutting back on nitrogen, obviously, that's going to lower yields immensely. It really is what it's going to do, so I don't have my crystal ball either. I can't tell you, this is 100% what's going to happen, but if I had to guess from talking to farmers that I've talked to this fall, that's going to be the one area that maybe they decide to clip.
Brad Carlson:
The situation in southern Minnesota is difficult to gauge. There's been an increasing trend towards split application and in-season application, as well as, because of water quality concerns, we've been strongly discouraging fall application also. So it's sort of my perception that there was a lot less anhydrous supply this fall than there has, but it's hard to know if that was intentional or if that's just simply following the trend that we've seen the last several years.
Jim Carlson:
Brad, I would say that as far as what got put on this fall, we're not done yet, we still got a little ways to go. We got a little weather here yesterday, or last night. We're crossing our fingers that we get a little more time yet, but we got a little bit work to do, but I would say that in general, I'll put it this way. We've equaled what we did last year and we got a ways to go yet on ammonia. I believe every one of our neighbors around us is the same scenario .
Josh Linville:
We did some research, and again, we looked at history to try and draw correlations and so we did a pretty deep dive into that, '07, '8, '9 period, and tried to ascertain, "Okay, what did we actually cut back? What did we lose, or did we lose anything? Are we just assuming that we did?" What we found is during that period, nitrogen demand went down 11%, but most of that was tied to the fact it was acreage loss. We dialed back the number of corn acres. We dialed back the number of bean acres, because what they did was say, "Well, heck with that, these prices, I'll plant soybeans." It's a cheap route forward. Phosphate demand, 32% lower. Most of that demand destruction was exactly that. It was not acreage loss, it was demand destruction. Potash was down 40%. Now again, 2008 was different than where we're at today.
Jim Carlson:
To my earlier point of we're going to put on a little more ammonia than we did last year, it's not the most we put on, but it'll be more. But over this last few weeks, we've had a lot of growers come back into us and put additional P and K on, ask if they can buy more ammonia, we haven't been able to sell more, but ask if they can buy more ammonia. And we're getting growers that are calling us that haven't called us in years. So I'm guessing they're calling every dealer, so they're very aware of what's going on and they're trying to do what they can to fight the higher prices that are coming at them.
Brad Carlson:
Yeah. So, Jim, I guess to take that just one little step further, so in your interaction with these farmers is that then, largely driven by fear of whether the fertilizer is going to even be available, or at the very least, much more expensive yet in the spring and they're just simply figuring, "We'll just do it now and bite the bullet?"
Jim Carlson:
Well, I think that's a great question because I believe there's a somewhat misperception out there that supply is going to be an issue. I believe supply could be an issue, but at this point, it feels like, at least from my perspective, that we're going to get everything we need. In fact, we got most of what we need purchased for next spring already, so I think there's maybe a little bit of misperception. But it's also they understand what the prices are doing and what retail prices are listed at for fall compared to what they're going to be for spring. In some cases, like us, we have a spring price sheet out there. It is higher than what our fall price sheet is, so they're seeing those things and we're picking up more business because of that.
Paul McDivitt:
What should growers be thinking about in terms of fertilizer purchasing decisions and nutrient management planning this fall and next spring?
Brad Carlson:
I'd just say there's one message that we've been giving farmers for a while now, and that is that just simply historically, following a drought year, we tend to see some residual nitrogen that is not a credit we normally look at being able to count on having, but when we see a moisture deficit in the soil profile, there is definitely the opportunity to potentially capture that. We do soil testing religiously for P and K. Doing it for nitrogen is not something that most farmers are in the practice of, but very specifically, for corn-on-corn acres and acres that have a history of manure application, it would be prudent to take a soil test this spring and see if there's the ability to credit some nitrogen that's residual from this last year.
Jim Carlson:
What I would encourage growers to do is, obviously, get in and work with their salesperson at their local dealer as soon as they can, because understanding what your costs are, working with your lenders, those things are, really, probably more important than ever right now. You got to understand what you can afford and what you can't afford and start working out what the options are.
Jim Carlson:
I think everybody would agree with this as far as retail management goes. Growers need to be aware or understand the fact that retailers are not going to take a lot of risk. There's a lot at stake here, so if you own $800 a ton pile of Urea in your bend, you are wanting to get rid of that. So you do not want to carry that to spring, not saying prices are going to fall $500, they could. That's the point, they could, and we're not going to take that kind of risk. So we already saw that this fall. We have dealers all around us that are not selling anymore where we have a little here left and a little here there, and whatever to sell yet.
Jim Carlson:
There's dealers out there that are, unfortunately, I hate to bring the word up, but are declaring force majeure. I don't know if they quite understand what force majeur means, but they're attempting to do that. Meaning they have sold something, but they're not going to honor it because they don't want to take that risk to bring those high dollar prices in, or they sold it cheaper than what they can buy it at now, those kinds of things. So I just want to make the point that, do not wait till the last second because your retailer might not have it.
Russ Quinn:
I'm curious, Jim, what happened in '08 and into '09, it's similar, like what Josh said, you being a retailer, is that essentially the baseline is that you need to make sure that you have it sold at a certain price to make sure what happens in '08 doesn't happen in 2021 then?
Jim Carlson:
I would say almost every retail dealer in 2009 had to write down their inventory, dramatically. I think Brad or somebody mentioned it earlier, there was dealers that closed the doors because of that.
Brad Carlson:
That was part of the off-air discussion, but I was familiar with smaller independent dealers that just got stuck sitting on piles of fertilizer and the price dropped and they just literally couldn't sell it for what they paid for it. It's a catch-22 on your size because if you're really big, your losses are really big. If you're really small, you might not be able to weather that either. So in both directions, carrying over a lot of inventory with high prices is just not something we would look for retailers to do.
Jim Carlson:
Yeah, I was a wholesaler at that time and I won't give a lot of details, but I was shipping Potash many states away to lose $100 less than I would if I had it in the shed that it was in so, $100 a ton is a lot.
Russ Quinn:
That's another reason why retailers and farmers have to have good communication back and forth. It's good to have good communication, period, but in these high times, if you will, of what's going on, having good communications between the two factions is pretty essential, I would guess for you, Jim, right?
Jim Carlson:
Yeah. Yeah. Correct. So luckily, we have people like Josh and other information, manufacturers and stuff that we work with, that we share a lot of information on and try to stay up on everything we can, internationally and domestically.
Brad Carlson:
I mentioned earlier the increasing trend towards split and in-season applications, I guess, obviously, we're not going to put you guys on the spot to predict what that's going to look like when we get to sidedress time in June. But I guess, just simply from a risk management standpoint, what do you think that looks like for a farmer to be sitting here saying, "Well, geez. Normally, I put on half my N in June as a liquid sidedress, or I topdress Urea at that time." Do you think that's an overly risky strategy if that's what they've been doing now for the last several years? Do they need to be thinking about making adjustments, or is it kind of, "It'll be there, steer the course. It just might be more expensive?"
Jim Carlson:
Really, really good question. So, first thing I think of on that, Brad, is that we'll get into all the supply chain issues and things like that and labor force issues. So everybody, right now, as you know, we all know this is it's hard to find people, right? So to be equipped to manage those split applications as a retailer is going to be harder this year than it probably ever has, because we can't find enough people to run the machines. So the people that are doing the pre-plant floater work, so we're going out and doing the custom floater work for them on the dry fertilizer, those people are probably going to have to move over to the spray machine sometime in May. We don't have people to backfill some of those things like we have in the past. Part-time people, you can't find them anywhere, so that's the first thing I think of. Now supply-wise, my gut feeling is the product will be there, but this year probably brings up more doubt on that than we have seen in a long time.
Brad Carlson:
So it sounds almost like you're saying probably more risk if you're having somebody custom topdress than if you, yourself, are doing sidedress with a liquid rig. I think that's a little bit of what I'm interpreting there.
Jim Carlson:
Yep. Yeah, that's a good summary. Liquid is probably the hardest one to figure out because we have so few players in that production realm controlling, I hate to say that, but controlling those products. As a retailer, it's harder and harder every quarter to find what you normally could find before, because they're controlling it better and releasing it at different times and so forth.
Jim Carlson:
Our retail is fortunate. We have probably 85% of our liquid needs purchased, but I guarantee you there's a lot of people out there that traditionally would have a portion of their purchases in place right now that don't have anything. So it could end up being a problem, but again, my gut is, it'll be fine. If you want to pay for it.
Russ Quinn:
I had retailers tell me over the years that the nitrogen market was almost a three-legged stool analogy in the fact that you would have the different forms of nitrogen. As long as everybody used the same amount of that they would normally use of the three, it was okay, but when something happens in the market and all of a sudden, everybody starts switching the forms over to the different forms, all of a sudden, the stool falls apart because all of a sudden, if there's a shortage of one, everybody goes to the other one and it just undoes the balance, if you will. I don't know if that is actually true, Jim, but that's something that I've had retailers tell me over the years.
Jim Carlson:
Well, that does happen, but I think it probably is less than what maybe we talk about, because if you look at Minnesota, really heavy Urea user, right? If you get north of the Minnesota River, it's almost all Urea. South, there's a little bit of UAN, but the people that do Urea aren't equipped to go to UAN. You go to Illinois and Indiana and Ohio and southern Michigan, it's all UAN. They're not equipped to switch to Urea, right? So they might be able to a little bit, but not dramatically.
Josh Linville:
I guess I'm a little more nervous on it, but I'm looking at it from anhydrous perspective, we are forecasting a 2 million ton fall application period. That will be considered normal for us if we hit the number, but the problem is if we have like what we had, was it fall of '17 or '18? Just a tremendously poor fall run. We didn't get more than like 1.3 million ton. Well, now all of a sudden, you start doing that math and it gets a little nasty come springtime. The general rule of thumb is, now this depends on where you are, like Jim said, "A dry guy can't easily go liquid. A liquid guy can't always go easily dry," but there are some limitations there, but for every ton of fall anhydrous that doesn't get put on, 50% stays anhydrous in the spring, which is at a demand; 25% goes to Urea, 25% goes to UAN.
Josh Linville:
That's only part of the equation. That 25% that goes to UAN takes 2.4 ton of 32% to make up for one ton of anhydrous. It takes two ton of Urea to make up that one ton of anhydrous. So you can see where these numbers start to bloom very, very, very quickly if we have a really poor start to the season.
Paul McDivitt:
All right. Any last words from the group?
Brad Carlson:
Well, I'd just say we'll be, we'll be out on the road doing our normal meeting season this year. After our COVID layoff, it's our intention to be back out there talking crop management this winter and so this is a topic that you'll be hearing plenty about.
Josh Linville:
"What is the best decision for my farm?" Not for your neighbors, not for the next state over, not for the next country or for whatever it might be, make the decision that's best for you. Nitrogen's high. "Can I make money, though, buying it, selling my grain?" Okay, go do that, or if the answer is, "No, I'm still negative," there's your answer. Don't get caught up in the emotion. It's a lot easier for me to sit here and say that when my butt's not on the line, when I'm not the one having to answer to the bank, but if you can, take that emotion out of your decision making.
Russ Quinn:
I would say that what I'm watching for is what happens over the next weeks and months, if prices do continue to go higher and higher. Every week, since the first week of December of '20, we've had higher fertilizer prices every single week, week-to-week that we track the retail prices. So Jim had mentioned that maybe there's signs that perhaps things might be changing and maybe prices won't continually go higher and higher like we've seen for nearly a whole calendar year already, that's going to be interesting to see if and when fertilizer prices stop climbing. Then, if that does happen, then do we see a period of lower prices or they're steady, or if we plateau? That would be what I would be curious about in the coming weeks of the end of 2021 and end of '22.
Jim Carlson:
I think short-term there's still price increases, right? It's the long-term I'm talking about, signals like energy costs. If coal is going down in China, it's been at record highs because the supply was low and they're not running production plants, and things like that. If coal goes down, that's a signal, because now it's more attractive for them to start up their plants. We never mentioned the Olympics, but surprisingly the Olympics are a factor in fertilizer prices, because if you shut down your coal-driven Urea production plants, you're not creating pollution. What did we see last time they had the Olympics? Pollution issues. So it's not just fertilizer manufacturing, but manufacturing in general, they're managing that. So it's hard to believe, but yes, Olympics is a factor in fertilizer costs as well.
Brad Carlson:
Well, I think one of my things that I want to remind farmers, again, talked about this earlier, is that we do have a fair amount of residual nitrogen leftover from last year's crop. Some of the early soil test numbers that we've seen indicate that we've got 80 pounds or even more of residual nitrogen in a lot of our farm fields. And so one of the ways that we can address these high fertilizer prices is simply to soil test for that, take credit for it, and reduce our rates. Now that's a little bit in contradiction with the need to actually be acquiring and speaking for that fertilizer, to make sure that it's available to you. But we need to strike a balance with that.
Brad Carlson:
Crop prices, commodity prices are pretty good right now. And it really wouldn't suit us well to just turn around and give that all back away if we could be making management choices to actually capture greater profit. Likewise, on the P and K side, I hear a lot of farmers talk from one year to the next about building soil test values of P and K, and how that's money in the bank. Well, if you've got money in the bank, don't you want to return that money when it's at its highest possible return? And that would be right now when these prices are this high. It's a good year. If you've got soil test values that are in the high, very high range, just skip the year and take a profit on that and come back and build those back up again when fertilizer prices are cheaper. It just makes sense.
Brad Carlson:
I think one of the things that we heard from our guests here today is that it does not sound like there's going to be major issues regarding fertilizer availability, that while maybe on a worldwide basis, there are problems with the overall supply of fertilizer, most of our guests seem to indicate that we have adequate domestic production of fertilizer, as well as the United States having a strong enough place in the world market that we'll get ours. They seem to indicate that the prices probably are not going to go down. And I guess we can figure out how to manage that. We've been talking about how to manage that now for quite a while.
Brad Carlson:
But I think one of the take home points from that all is that farmers do need to be thinking about how much fertilizer they need and probably booking that fertilizer, that a lot of dealers are going to be locking in their supplies for next year. The reason for that being there at some pretty significant risk as far as buying supplies that they do not have spoken for. If they sit on inventory and the price goes down, they're going to be stuck selling that for a loss. And so a lot of our dealers are probably going to only acquire what they've got bought and that's about it. And so if you don't come in and pre-price it, despite the fact that it's high priced right now, you might not get it. Now, the exception to that may be that late season, the sidedress stuff that we're talking about in June.
Brad Carlson:
I know one of our speakers mentioned that we're fairly self-sufficient production of UAN in this country, as well as the fact that that's getting out quite late into the year if we're going to start seeing some changes in the marketplace and so forth. It's likely that those will be realized by then. And so I guess I wouldn't get myself too concerned about that. But then again, I'm not a fertilizer market expert. So I guess take that for what it's worth and make your own decisions accordingly. So I guess overall, I think the bottom line is that fertilizer probably is going to be available, it's going to be higher priced, and that farmers should be coming up with a strategy to address it.
Paul McDivitt:
All right. That about does it for the podcast this week. We'd like to thank the Agricultural Fertilizer Research and Education Council, AFREC, for supporting the podcast. Thanks for listening.
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