What to Expect With Fertilizer Increases

It’s hard to trump political news in an election year, but throughout 2004, one item of interest consistently lingered in the background of news broadcasts and newspaper reports: Gas prices.

With war in the Middle East impacting the market and global oil production down overall, most people noticed the rising costs when they paid at the pump to fill up their vehicles. Seeing regular unleaded gasoline at $2 a gallon wasn’t unusual.

Currently, gas prices are down slightly, with a national average of $1.77 per gallon, according to GasPriceWatch.com, which reports that the highest price this year was $2.59 per gallon. Still, with a cold winter setting in, homeowners probably won’t warm up to the fact that natural gas prices are still rather high – currently trading at $6.80 per MMBtu on the New York Mercantile Exchange.

And while it doesn’t seem like the two would be related, natural gas used for heating and cooking also is a key component in the production of urea – the main form of synthetic nitrogen used in most lawn fertilization. As such, lawn care operators can expect to see higher fertilizer prices this year. According to Lawn & Landscape reports, most fertilizer suppliers are comfortable when natural gas prices stay between $2 and $3 per MMBtu. In early 2003 prices hovered around $5 per MMBtu and with current prices nearing the $7 mark, many companies on both the manufacturing and lawn care service sides already are feeling the pinch. 

“Fuel and natural gas are significantly more expensive this year, as well as the cost of transporting fertilizer,” explains Bob West, director of marketing for LESCO, Cleveland, Ohio. “On the manufacturing side, we’re buying raw materials with a high price tag and ultimately, we have to pass on some of that cost to our customers.” LESCO sent out a letter to their fertilizer customers earlier this year, outlining the price increases for raw materials, and explaining the reasoning behind the higher costs contractors must pay as a result.

According to the letter, the cost of urea has increased 45 percent from $165 per ton in the spring to $240 per ton in September. Additionally, potassium and phosphorus – two other main fertilizer components – also have increased in price. Phosphorus is up 10 percent to $210 per ton and potassium has seen a 33-percent increase to $140 per ton. West references a strong global demand for these two elements and other manufacturers are noticing the increases, as well.

“These increased prices are actually a global issue,” says Don Johnson, general manager, BEST Turf Fertilizer, Pocatello, Idaho. “China is a big consumer and a lot of other countries are buying, as well. Additionally, the other element that plays in is sulfur, which is used in the reaction with phosphoric acid to make phosphorus fertilizer. It’s a byproduct of oil production and the cost is extremely high. We’ve seen it more than double the cost from last year and if you look at two years ago, it’s almost triple the cost. Altogether, that’s driven the cost of phosphorus up.”

With the resulting higher costs, LESCO, for one, has increased contractors’ materials prices 8 to 12 percent on fertilizer products and 3 to 7 percent for combination products. While no one likes an increase, West says LESCO customers have responded positively to the company’s forewarning of price increases and are making moves to buy their materials early, rather than risk prices going up even more.

“We’ve had a positive response in that our customers appreciate the advance notice of the price increase,” West says. “It lets them plan for their businesses because their costs are rising, too. A lot more customers are buying their fertilizer earlier and even if they can’t buy it now because of space or storage constraints, they’re contacting us to make sure their pricing is lined up for when they are ready to buy.”

On the other hand, Ray Buckwalter, Product Manager for Lebanon Turf, Lebanon, Pa., noted that his company’s costs were not up significantly due to the direction of their product line. “We’ve moved away from sulfur-coated urea a bit and made methylene urea a focus area,” he explains. “The cost of ammonium sulphate, which is used in the production of methlyene urea, has not gone up as much, so it’s been a bit more cost attractive. We’ve always had price increases because of materials costs and transport costs going up, but our increases are much less than 10 percent because we’ve done it consistently year in and year out.”

West notes that LESCO actually is increasing their prices less than it needs to because the company realizes the market will only bear so much. “We recognize that it’s not just materials costs that are going up for these contractors – they have labor, fuel and other costs to consider as well,” he says. “It’s a challenge across the industry, and we’re certainly willing to shoulder some of the responsibility.”

Indeed, contractors around the country are working out plans to pass on their increased costs to customers without putting too much tension on the contractor-client relationship. “Last year, I raised prices $1 per customer, per application,” remembers Bill Culp, owner, The Greenskeeper, Columbia City, Ind. “We actually got some static from that, so right now I’m working on the best way to approach the situation this year. I’ve spoken with other friends in the industry who said they’re planning to raise prices 5 to 10 percent. With an average lawn costing $30 an application, a $3 increase might be too much for our customers. I may go across the board with another $1 increase or bite the bullet and not raise it at all.”

Culp says his business is booming – up 70 percent from last year – but the increased number of customers also adds to his cost of operation. He expects to pay 20 percent more for fertilizer this year, which would be around $12 per bag. “Early on, our cost was only about $6 a bag, so that’s a hefty increase over the years,” he says. “The challenge is deciding whether to raise prices and take a chance on losing clients or not raise prices and take a hit on your bottom line.”

Michael Hornung agrees. “We did our fertilizer purchasing back in October because we saw what was coming in terms of price increases,” says the president, Valley Green, St. Cloud, Minn. “From the beginning to the end of 2004 we had to make adjustments upwards of our costs – we saw a 5 to 7 percent increase for fertilizer and I’m assuming that soon it will end up being more than that compared to last year’s prices.”

In addition to fertilizer prices, gas prices in Hornung’s area hovered between $1.80 and $2 per gallon for most of the year, which added to the costs. “We can handle a little increase in prices for these types of materials, but we can’t absorb all of it overall,” he explains. “We’re raising prices by a few percentage points this year and we’ve sent out letters to our customers explains that petroleum-based products are on the rise and everyone ends up having to pay more. We get lots of grumbling, but there are two ways you can go about business: Not charge enough and lose money in the end, or charge too much and not have enough customers to keep the business going.”

Beyond passing heightened costs onto customers, some industry professionals noted ways the contractors can keep their costs in line. “One thing we suggest to anyone who’s getting ready to make applications is that they know exactly what and how much material they need to put down,” says Bob Hoeft, soil fertility specialist, University of Illinois Extension, Urbana, Ill. “Use soil testing to determine what the levels are for phosphorus and potassium, especially. Keeping soil pH where it belong can help maximize the nutrients the turfgrass is receiving from the soil and from the fertilizer, as well.”

Because ideal turf health varies by region, contractors can contact their local extension agencies to find out how to administer an accurate soil test and compensate for lost or excess nutrients to reinvigorate lawns.

Additionally, West notes that contractors may want to look into using combination products with weed control in addition to fertilizer. Popularity of these products is rising, he says, and as prices for those products had a smaller increase than for fertilizer in general, it may be a viable alternative for price-conscious contractors.