At every level in the world of agriculture, all of us often get caught up in the price of goods versus the value of goods. It’s an age-old, chronic equation, one all of us should keep in perspective. Over the past year, the volatility of the fertilizer market brought in a number of comments and complaints from everyone involved in the plant foods industry—customers, managers and many of us here at MFA’s home office.

We’d all do well to stop for a minute, though, and consider value in today’s market as opposed to price. Consider that today’s fertilizer cost is actually undervalued when you look at historic costs and anticipated grain revenue. You might think that’s easy for me to say since I’m on this end of the equation. But remember, I also grow corn and soybeans and raise cattle. I understand the arguments.

Look at the relative value of corn prices over anhydrous cost per acre today and compare one year ago to the current prices. You’ll see a 23 percent drop in fertilizer price at the time of this writing in early November. If those prices hold or stay in the same range relative to recent costs, more farmers will move fertilizer across MFA’s trade territory this year and into 2007.

That’s because economics are looking good. Today’s prices are comparable to 2004. Add in the effects of the value of ethanol. If we can keep $3-plus corn, we’ll see tremendous increase in acres. If that happens, it will have a stabilizing effect on the market. Ethanol is fueling the biggest bull market for corn since the 1970s. In turn, the tide of rising corn prices might lift the boats of other grains as processors try to keep other grain supply steady.

Of all the variables in play today, one agronomic principle remains inflexible. If you don’t put adequate nitrogen on corn, you’ll take a 25 to 50-bushel cut in production. It makes absolutely no sense to rob a corn crop of nitrogen. The economics of not having enough nitrogen far outweigh the upfront investment. The old rule of thumb is that 1.2 pounds of nitrogen are required to produce a bushel of corn. When all is said and done, $3-plus corn changes the economic picture when you consider around $50 of nitrogen investment yields an additional $200.

All that said, today’s fertilizer market is not the same as your father’s fertilizer market. It’s not even the same market as a few years ago. There used to be a 20 to 30-day window of comparative stability in the fertilizer market. Prices would change according to market conditions, but that change was more predictable and took place over a longer timeframe. Today, it’s a daily market. For instance, when our plant foods division members were meeting with suppliers in mid-October, the urea market changed by $15 in a matter of hours!

One explanation is that buyers and resellers are waiting to the last possible minute. As our buyers explain to me, the practice of “just-in-case” inventory has been replaced by “just-in-time” inventory. To bolster that argument, in early November, only one large player was buying urea. That company’s buys were not market driven. The buys were driven by the need to meet contractual obligations.

In mid-November the west central part of the United States was the cheapest place to buy urea. Our plant foods division also tracks urea supply in the former Soviet Union countries and the Arabic nations. In talking of this year’s expected price, our vice president of plant foods quotes distributors in five countries half a world away. Price is not driven by supply and demand. What’s in play is the gap between the U.S. price and the world price. As that gap closes, the international community will move to fill our demands. They will make no move until that gap closes. If the United States does not meet the world price, world suppliers will look elsewhere.

At MFA, we have highly trained and experienced employees to contract supply for our plant foods division. Right now with no disrespect intended, they shake their heads when I ask about fertilizer prices. From my perspective, by Dec. 31, farmers are going to want firm prices. The situation reminds me of the old story of Harry S. Truman when his economists constantly hedged by saying, “Well, on one hand it could be so and so. Now on the other hand...” Truman famously demanded, “Damn it, somebody bring me a one-armed economist.”