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Macroeconomic News


LOS ANGELES (AP) - Link Leaven's fertilizer bill has been growing faster than the lemons and avocados on his Ventura County farm.

Tue, 15th Apr 2008 22:03


Every week or so, when he orders another truckload of the nutrients, he's
been getting hit with a price hike of up to 20 percent.

'It's like there's no end in sight. It's very scary,' said Leaven, who pays $600 for a ton of some fertilizer mixes that he paid half as much for just six months ago.

Farmers across the country are seeing similar price increases caused by several factors, including the booming demand for fertilizer to produce animal feed for rapidly developing nations like India and China, where people are adopting diets richer in meat.

In the United States, high gasoline prices are prompting growers to plant fertilizer-dependent corn for the manufacture of ethanol fuel. High energy prices also have affected the availability of natural gas, a key ingredient of nitrogen-based fertilizers that can now be sold more profitably as fuel.

Midwestern growers of commodities such as corn and grain have been able to absorb the cost hikes as their crops fetched higher prices. But growers in California, the nation's leading agriculture state, have yet to see retail prices increase for the fruits and vegetables that dominate their farms.

In fact, farmers saw the average price of broccoli fall to about 23 cents a pound in February, down from 26 cents a year earlier, according to the U.S. Department of Agriculture. Lettuce prices also dropped about 3 cents to 13 cents a pound during the same period.

Along with soaring labor, water and fuel costs, increasing fertilizer costs have been draining farmers' savings and will likely lead to higher prices for fruits and vegetables to go with separate increases in meat, poultry and dairy products.

Jim Prevor, editor of Produce Business magazine, said some produce prices are already beginning to creep up due to fertilizer and other costs, but major increases won't be seen until farmers curtail crops that become too expensive to grow.

'Eventually it's going to have to change,' Jack Vessey, a lettuce and spinach grower in San Diego County, said of prices.

Vessey said he's currently pushing for a price bump from distributors that buy from his farm.

In the Central Valley, almond, tomato and lettuce grower Mark Borba said the twofold price increase for some nutrients could lead him to cut production.

'At some point, when any manufacturing business finds their raw material costs exceeding the price of what they've produced, they will stop,' he said.

It's been a long time since the fertilizer needs of farmers could be met by dredging a manure lagoon on their land.

These days, nutrients are processed from minerals dug from mines, such as phosphorous, or created through complex chemical procedures, as with nitrogen.

Those compounds are manufactured and sold by giant multinational companies that are raising prices in line with demand.

U.S. farmers paid about $322 a ton for fertilizer in April 2007, the most recent figures available, up from $291 a ton a year earlier, according to the USDA.

The agency won't release its next set of annual figures until later this month, but its monthly fertilizer pricing index points to even more drastic increases.

Joe Burdullis, co-owner of Oxnard, Calif.-based fertilizer supplier AG RX, said he's been receiving a constant stream of price-hike notices in recent months from dozens of manufacturers.

'We'll get four or five different price increases in any one day,' said Burdullis, who has been supplying growers in Ventura and Santa Barbara counties for about 50 years. 'I've never seen anything like this.'

Fertilizer producers have been operating their factories at full bore to meet the growing demand, but there's not enough manufacturing capacity to bring down prices, said Charles Nekvasil, a spokesman for Deerfield, Ill.-based fertilizer producer CF Industries Inc.

'It's supply and demand, and there hasn't been a lot of supply coming on the market,' he said. 'It's almost a bidding war.'

The USDA said earlier this month that it expects American farmers to cut back on corn this year in favor of soybeans, which require less fertilizer to grow.

But a sharp drop in soybean prices in the days before the projection's release has made some economists doubt the USDA forecast.

Fertilizer prices also are being nudged higher by the heightened security costs paid by manufacturers to produce and ship ammonium nitrite, a fertilizer ingredient that can be used to make explosives, said Harry Vroomen, chief economist for the Washington-based Fertilizer Institute.

California growers are feeling the pain and said it's only a matter of time until shoppers do, too.

'Budgets have to increase in order to keep doing what we're doing, and the hope is that on the retail end we can get it back,' said Andy Hooper, who manages a farm that grows strawberries, celery and bell peppers in Ventura County. 'The bottom line is the consumer's going to be paying more.'



Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.




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