Rising fertilizer costs reveal another side of oil market
Even with corn prices up more than 100 percent from December 2005, high oil-based fertilizer costs are stressing local farmers’ budgets. It is a fact that reveals the irony of the unpredictable oil market that carries mostly unseen — or perhaps more accurately, ignored — consequences beyond the gas pump.
Since late 2005, corn prices have shot from roughly $1.80 a bushel to $3.80 — peaking near $5 — per bushel as ethanol, a corn-based alternative fuel, has become more prevalent in states like Delaware, which mandate its use as a blend in gasoline.
Those in the market for nitrogen fertilizers — which are made using natural gas and used by corn farmers to stimulate the crop’s growth — have also seen their price ascend n recent years, with experts tying oil-based fertilizer price levels directly to the natural gas market.
That market has seen record prices in the last five years but stabilized recently, according to Phil Flynn, a market analyst in Chicago who also stressed ethanol’s effect on corn prices
Dr. Eddie Funderburg, an agriculture expert with the Samuel Roberts Noble Foundation who holds a Master of Science degree in Agronomy, linked the markets as early as 2001 in an essay that can be found at www.noble.org on the Internet.
According to officials at Southern States in Dagsboro — a vendor and cooperative that sells agricultural supplies — the price for 30 percent nitrogen fertilizer, prominent among corn farmers locally, has risen 30 to 50 percent in a year. Prices have risen from roughly $175 to $200 per ton last year to $250 to $280 now, officials there said this week, attributing the price to the natural gas market demand caused perhaps by farmers locally and nationally planting more corn to capitalize on the high return on the crop.
The National Agricultural Statistical Service, the statistical arm of the U.S. Department of Agriculture, projected in March that Delaware farmers will plant corn on 185,000 acres this year, a 15,000-acre increase over last year and a 25,000-acre increase over 2005.
The average price nationwide three years ago was $127 per ton, according to the NASS. Mark Fuchs, a regional agronomist with Southern States, called the situation a “perfect storm scenario.”
“You have a much greater increase in demand and you’ve got higher production costs,” he said. “Everybody in the world knows that.”
Despite the reports projecting an escalation in corn production, Clifton Murray, a Selbyville farmer, treated this year as any other, planting the crop on roughly 2,000 of his 4,000 acres. Murray said that he has noticed rising “input” costs, partly due to fertilizer, and worries — especially in a season that has been dry early — that rising costs could cut into his profit margin.
“It’s a gamble,” Murray said, adding, though, “It’s something you’ve got to absorb. Corn is not going to grow without fertilizer.”
Michael McGrath, an agricultural planner with the Delaware Department of Agriculture, called rising prices a “bad situation” for farmers and warned that overplanting the corn crop could cause prices to drop and stabilize with supplies at high levels.
While Flynn doubted an ethanol “bust” is forthcoming, McGrath said such a move would mark a continuation of a ubiquitous trend in the agricultural industry that he explained this week.
“Input prices for farmers tend to go up, like a lot of industrial products we all buy, in response to bigger market pressures,” McGrath said. “Prices for products fluctuate; prices for commodities continue to stabilize. Inevitably, with rising energy prices, fertilizer tracks along with those things because it’s a derivative product.”
But Murray’s is the same “you-gotta-do-what-you-gotta-do” argument expressed by many other local farmers in similar situations, who will continue to benefit from higher corn prices.
Eric Albright, who plans to harvest corn from roughly 750 acres locally this season, said he “will be in trouble” only if prices continue to rise, corn prices fall and harvest levels dip due to bad weather. Until at least two of those things happen, he will not burden himself by worrying, he said Tuesday.
“What are you going to do? If the price was $2 and fertilizer was doubling, then maybe you’d start worrying about it,” Albright said. “If we’re going to grow corn, you have to put in the inputs into it. You can’t fertilize for a poor crop. This year might be the bumper crop. If you don’t have it out there, you won’t have the bumper crop.”
Not all farmers who grow corn, though, benefit directly from higher corn prices. Unlike Albright and most others who sell their corn — mostly into the local poultry industry — Keith Johnson is growing corn on 425 acres this season and will feed most of the harvest to hogs he and his family raises on their farm on Route 20.
Alarms do sound, Johnson said, for farmers like him who do not benefit from higher prices that can help to avert the higher input costs that have come recently not only in gas prices but with rising fertilizer costs.
“When you’re able to directly market all your grain, you’re truly capturing the market value. We’re indirectly marketing it through our meat. While the hog price is up, it’s not quite matching the additional cost,” Johnson said. “Over the last few years, we’ve experienced a raise and are trying to contend with it the best we can. It is a challenge.”