May 18, 2010
Fertilizer Costs Increase 25% in Three Months in Central Brazil
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
In recent years, one of the more risky decisions for Brazilian farmers has been when to purchase their supply of fertilizer needed to grow their crops. The recent volatility in fertilizer prices has farmers wondering what is the right strategy for fertilizer purchases. In some years, if they waited to purchase the fertilizer, the prices skyrocketed at the time of planting. In other years, farmers paid very high prices to secure their fertilizers well in advance of the planting season in fear of shortages, only to see prices collapse at planting time.
This year, it seems that purchasing their fertilizers early may turn out to be the right decision. Over the past few months, the price of fertilizers in northern Mato Grosso has increased 25%. In February, a ton of 0-18-18 fertilizer (nitrogen, phosphorus, potassium), which is the most common fertilizer used for soybean production in Mato Grosso, sold for R$ 600 a ton in Sinop in northern Mato Grosso. That same ton of fertilizer today is selling for R$ 750 a ton.
The decision of when to buy their fertilizer is complicated by the fact that many farmers purchase their fertilizers from grain companies and pay for it by selling some of their soybeans. The problem is that soybean prices today are approximately 40% less than what they were a year ago. Therefore, it is going to take a lot more soybeans to secure their needed fertilizers. In the city of Sinop, soybeans this year sold for R$ 26 or R$ 27 per sack (US$ 7.40 to 7.70 a bushel) compared to last year when the price was approximately R$ 40 a sack or US$11.40 a bushel.
If soybean prices continue to weaken and fertilizer prices continue to strengthen, the farmers who have not made their fertilizer purchases are going to be facing a very tough decision. Should they purchase the expensive fertilizers and increase their cost of production at a time when it is already questionable if soybean production will be profitable, or should they cut back on fertilizer applications in order to lower their cost of production and risk lower soybean yields?
When fertilizer prices were very high several years ago, the cost of fertilizer was nearly 50% of the total cost of producing soybeans in Mato Grosso. Last year, fertilizer cost accounted for approximately 35% of the total cost of production.