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BetterFarming.com

Better Farming

October 2016

MMBtu (one million British Thermal Units) in 2016 and

$2.95/MMBtu in 2017. Lower crude oil prices in 2015 and

2016 have led to a global glut of fertilizers, which has made

them more affordable. Future price direction could depend

on the U.S. crop, and the market does not seem too opti-

mistic about grain prices going forward. U.S. farmers are

looking to harvest huge (record large) crops in the 2016-17

growing season. With resultant tight crop margins expect-

ed, some corn farmers could tighten their input spending

and cut back some on applying fertilizer. But some may feel

that it is even more important to make good yields, now

that grain prices are low, and maintain their fertilizer

application levels.

Nitrogen fertilizer is a major input in corn production,

and the two are highly positively correlated. Better-than-ex-

pected soybean prices could prompt U.S. farmers to switch

to more soybeans and less corn. Soybeans do not use

nitrogen fertilizer and have been more profitable than corn

in recent years. Moving acres out of corn will reduce

demand for nitrogen fertilizers. Less demand in turn will

exert downward pressure on fertilizer prices.

Factors that could push fertilizer prices higher include:

Global currencies strengthening as the U.S. dollar

weakens (making fertilizer imports cheaper);

The slowdown in Chinese urea exports due to strong

domestic demand (demand for the product in China has

led to higher domestic prices than export prices);

Solid demand out of Brazil; and

A lucrative Indian subsidy for fertilizer purchases and

strong Indian demand due to forecasts for a return to

normal monsoon rains.

With U.S. retail fertilizer moving lower in recent months,

fertilizer prices are significantly lower compared to a year

earlier. Anhydrous ammonia is down by 25 per cent; MAP

and DAP are down by 22 to 23 per cent; potash is down 37

per cent; liquid nitrogen is down 27 per cent; and urea takes

the biggest drop at 31 per cent.

In 2017, as seasonality kicks in, nitrogen fertilizer prices

are expected to drop after the spring season. Though grain

prices have eased off recently, current fertilizer prices make

crop nutrients more affordable today than they have been

during the last five years.

An expected rise in crude oil prices could tighten supply,

but lower grain prices should keep demand steady to low.

This could lead to 2017 fertilizer prices remaining range

bound and trading at the lower end of the 2016 range.

Farmers could simply buy as their need dictates for the

remainder of 2016 and/or 2017.

BF

Maurizio "Moe" Agostino is chief commodity strategist with

Farms.com

Risk Management.

Abhinesh Gopal is a commodity research analyst with

Farms.com

Risk Management.

Risk Management is a member of the

Farms.com

group of companies.

Visit

RiskManagement.Farms.com

for more information.

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