July 22, 2011
US fertiliser prices to drag 2012 corn and soy profits lower
High fertiliser costs, and lower crop prices, will in 2012 end a two-year run of rising profits for US corn and soy farmers - and presenting a significant risk of very low returns.
US corn growers will next year fork out US$165 an acre for nutrients, a rise of 35% in two seasons, and returning costs near to those paid in 2009, when the market was feeling the hangover of a jump in nutrient costs to a record high.
Potash prices for trade buyers have already recovered to a two-year high just below US$500 a tonne, data from PotashCorp last week showed, with those of ammonia - a major source of nitrogen - topping US$500 a tonne, having fallen nearly to US$100 a tonne at depths of the global economic crisis.
Phosphate prices have rebounded above US$600 a tonne excluding freight, for export from the US port of Tampa, twice levels plumbed during the slump.
"The costs that are projected to increase the most between 2011 and 2012 are fertilisers," a report from farm economists at the University of Illinois said.
Nutrient prices are being buoyed by firm demand in both the US and abroad, with Brazilian growers raising purchases in June by 50%, on-year, to 2.6 million tonnes.
But with crop prices set to ease, as implied by Chicago''s futures market, farmers'' receipts will drop, even assuming a rise in yields, which at an underlying level tend to rise by two bushels per acre for corn every year, and 0.5 bushels an acre for soy.
For corn farmers, the net return will drop by 22% to US$269 an acre, while soy growers will suffer a 19% decline to a three-year low of US$136 an acre.
"Current projections suggest that 2012 will be a profitable year," Professor Gary Schnitkey, who headed the research, said. "However, cost levels are high, resulting in high levels of risk."