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  • From: "Tradingpost" <tradingpost@lobo.net>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] Lofty Prices for Fertilizer Put Farmers in a Squeeze
  • Date: Tue, 27 May 2008 10:29:09 -0600


What a great time to grow without commercial fertilizers. Our costs don't go
up - theirs do, and so do their food prices

paul tradingpost@lobo.net
-----------------------------------------

Lofty Prices for Fertilizer Put Farmers in a Squeeze
http://online.wsj.com/article/SB121184502828121269.html?mod=hpp_us_whats_news
Wall Street Journal May 27, 2008; Page A1

At a time when food prices are soaring world-wide, so is the price of
fertilizer, producing huge profits for leading fertilizer makers and stirring
anger among farmers in the U.S. and India.

Fertilizer prices are rising faster than those of almost any other raw
material used by farmers. In April, farmers paid 65% more for fertilizer than
they did a year earlier, according to the U.S. Department of Agriculture.
That compares with price increases of 43% for fuel, 30% for seeds and 3.8%
for chemicals such as weedkillers and insecticides over the same period,
according to Agriculture Department indexes.

Those skyrocketing costs are making it harder for farmers to expand their
harvests in response to the global food crisis that has sparked rioting,
rationing and export controls in many countries. Food prices have soared in
recent months as the world's growing demand for grain, which has exceeded
production for much of this decade, has reduced stockpiles to extremely low
levels.
[Higher Farming Costs]

That's helped to draw attention to farm-production costs, including
fertilizer. Farmers say too much market power is concentrated in the hands of
a small group of companies in the U.S., Canada and Russia that dominate
global production of potash and phosphate. Along with nitrogen, potassium,
usually in the form of potash, and phosphorus, in the form of phosphate, are
the main ingredients of fertilizer.

The price of fertilizer "defies rational explanation," says Robert Carlson,
president of the North Dakota Farmers Union, one of the state's most
influential farmers' groups. In a May 8 letter to North Dakota's three-member
congressional delegation, he accused fertilizer companies of "price gouging,"
and asked for an investigation.

On Friday, Sen. Byron L. Dorgan, a North Dakota Democrat, said he is asking
the Federal Trade Commission to scrutinize the industry's business practices.
Sen. Dorgan heads the Senate Commerce subcommittee that oversees the FTC.

Tight Supplies Blamed

Major fertilizer producers deny any allegations of gouging. They say they are
simply raising prices to reflect tight supplies and growing demand after
years of relatively low prices.

But there's an unusual piece in the pricing puzzle: In several countries,
obscure laws shield makers of potash and phosphate from certain antitrust
rules. In the U.S., for example, phosphate makers are among a handful of
industries empowered by the 1918 Webb-Pomerene Act to talk with competitors
about pricing and other issues.

Some legal experts think that law has outlived its usefulness. "It's an
obscure act that's moribund," says Jim Mongoven, an attorney in the FTC's
Bureau of Competition.
FROM THE ARCHIVES

• Dairy Co-Op Faces Price-Manipulation Probe
05/19/08
• In Ukraine, Tiny Plots Of Farmland Spur Big Bet
05/12/08
• 'Saudi Arabia of Milk' Hits Production Limits
05/08/08
• As Food Prices Rise, Shoppers Stock Up
05/01/08

In India, the head of one of India's largest buyers of fertilizer is
appealing to the United Nations for help. "The fertilizer prices are
artificially going up due to the manipulation of traders and suppliers," said
Udai Shanker Awasthi, president of Indian Farmers Fertilizer Co-operative
Ltd., in an interview Friday.

China, after initial protests, recently agreed to pay $576 per ton of potash,
up $400 from its previous deal in 2007, to Canpotex, a potash export cartel
protected by an exemption in Canada's Competition Law.

In March, Russian antimonopoly regulators required the country's largest
potash maker, Uralkali, to cut domestic prices of the plant nutrient after
wrangling with the company over its pricing behavior in court. Brazil's
government is considering nationalizing the country's fertilizer deposits to
help reduce farmers' production costs.

Helped by soaring potash prices, Potash Corp. of Saskatchewan Inc., one of
the companies that make up Canpotex along with Minnesota-based Mosaic Co. and
a smaller Canadian producer called Agrium Inc., posted first-quarter net
income of $566 million, or $1.74 a diluted share, nearly triple the
year-earlier figure. The company's stock has risen nearly eightfold to around
$200 from about $25 three years ago. Mosaic's latest quarterly earnings came
in at $520.8 million, up more than 10-fold from a year earlier.

Phosphate, a mineral found in fossilized marine life, provides essential
nutrients for plant-cell development, while potash, a rock mined from the
earth, helps plants grow strong. Prices of both are climbing faster than
those of nitrogen, which is manufactured in a process that requires lots of
natural gas.

In North America, nitrogen fertilizers are applied liberally to corn and
wheat fields. Urea, a nitrogen-carrying fertilizer, is selling for around
$600 a ton, twice the price a year ago, mostly because of a steep run-up in
natural-gas prices.

The price of phosphate has climbed to about $1,000 a ton, up from $365 last
year, according to Green Markets, a trade publication, while the price of a
ton of potash is now more than $700, up from $230.

Industry executives say their companies are trying to ramp up production by
making their mines run more efficiently, but there are few new mines on the
drawing board.

Michael R. Rahm, vice president of market and economic analysis at Mosaic,
said his company's prices are a true reflection of supply and demand. "The
industry was not equipped to deal with the surge" in demand, he said. Still,
he said he understands how farmers might be concerned as prices continue to
rise.

Bill Doyle, chief executive of Potash Corp., told investors in April on a
conference call about quarterly earnings that buyers could soon be paying
$1,000 a ton for potash. He added during the call that continued price rises
will "be a shock" to some consumers.

In an interview Monday, Mr. Doyle called recent complaints about prices an
emotional reaction. Fertilizer prices began rising in earnest about a year
ago after a nearly decadelong period of stability. "People don't like higher
prices," Mr. Doyle said. But "you never hear from anyone complaining when
prices are low."

Mr. Doyle said he welcomes any investigation into his business but added that
regulators will come to realize that the higher prices are "a pure function
of the marketplace."

Outside analysts say the industry has plenty of supply. "There's not really a
supply issue at the moment," said Steve Jesse, an agriculture economist at
Rabobank Group of the Netherlands, a large lender to agribusiness around the
world. The U.N.'s Food and Agriculture Organization said in a forecast in
February that the world's supply of nitrogen, phosphate and potash is
"comfortably sufficient to cover demand growth" through at least 2012.

Chemical fertilizers are so effective in raising crop yields that economists
figure farmers would be able to feed billions fewer people without them.
Fewer than a dozen countries have substantial potash reserves, while more
than 160 countries consume the fertilizer.

Fertilizer manufacturers say they intend to focus on increasing the
productivity of their existing mines. Mosaic, in which Cargill Inc. of
Minneapolis holds a controlling stake, said it plans to "de-bottleneck" some
of its Florida phosphate mines to boost supply.

Phosphate Mining

Potash Corp. said it can raise production to 15.7 million tons by 2015 from
its current capacity of 10.2 million tons by improving the operation of its
existing mines. Opening a new phosphate mine can cost more than $2.5 billion
and take around seven years, the company said.

"Developing new production takes a long time, a lot of money, and an
expertise that few possess," Potash Corp.'s Mr. Doyle recently told investors.

In the U.S., Potash Corp. and Mosaic are the sole surviving members of a
phosphate export cartel called the Phosphate Chemicals Association. Under a
90-year-old law designed to promote American exports, the companies are
allowed to legally market and sell their product overseas as a single entity
at a price set in consultation with one another. Similarly, Canada has
Canpotex, and Russia has Belarus Potash Co., another export cartel.

While the individual cartels can't legally collaborate among themselves on
pricing, they regularly -- and legally -- follow each others' price
increases. After the Russian cartel recently said potash prices would rise to
$1,000 a ton, Potash Corp.'s Mr. Doyle said Canpotex would soon match that
price.

Denis Evstratenko, a UBS metals and mining analyst, said the cartels have
little incentive to undercut one another in the current environment.

To protect American consumers, members of the U.S. cartel are required by law
to compete against each other in selling their wares at home. But in today's
global markets, the global price sets a benchmark so American farmers pay
essentially what the cartels dictate.

"That's the whole key that we're running into this year," said John Hawkins,
a spokesman for the Illinois Farm Bureau. "The barriers that we have seen in
the past between domestic and international prices have just fallen down.
We're now participating in a global fertilizer market."





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