U.S. farmers rattled by $39 bln BHP bid for Potash

* Farmers worry over input costs

* Less competition, higher fertilizer prices?

* BHP Billiton offers $38.6 bln for Potash Corp.

By Julie Ingwersen

RUSKIN, Nebraska, Aug 17 (Reuters) - The possible creation of a fertilizer giant between BHP Billiton's and Potash Corp has rattled U.S. farmers who fear higher input costs if the $38.6 billion deal goes through.

BHP Billiton's acquisition offer was rejected by Canada's Potash Corp but the the world's largest fertilizer company said it might consider a more attractive proposition.

"They already got us right now, by the throat," said Wes Exelby, a farmer from Saline, Michigan. "They control the markets and put the price where they want."

Exelby got word of the proposed mega-deal -- the largest of the year in any industry -- while on the week-long Midwest corn and soybean crop tour that kicked off on Monday and was widely expected to see record production of both crops.

Potash Corp of Saskatchewan produces potash, nitrogen and phosphate products and markets them to fertilizer, industrial and animal feed customers around the world.

Potash accounts for about 4 percent of the total fixed cost in running an average 500-acre (202-hectare) corn farm in Iowa that will yield an average 180 bushels per acre.

The total fixed cost for such a farm is $612.50 to produce an acre of corn, according to Iowa State University Agricultural Economist Mike Duffy.

The total fertilizer cost is $100.64 per acre and potash would account for $23.22 of that total. The balance is nitrogen $41.91, phosphate $25.84 and lime $9.67, Duffy said.

Farmers in the Midwest typically harvest their corn and soybean crops in the autumn, with the harvest likely coming a littler earlier this year due to early planting.

Fertilizer costs surged in 2008 amid tight supplies and in tandem with a surge in grain prices, but collapsed in subsequent months as the world fell into recession and a credit crunch led to a slump in fertilizer demand.

'SUPPLIERS JUST PASS ON COSTS'

"We don't have the option to control our input costs beyond the current crop year. The suppliers just pass them on," said Kurt Line, a farmer from Momence, Illinois.

"There is concentration on the retail side, but not on the wholesale side," said Line, who's also on the crop tour. "Unless you can take delivery of your inputs, there is no way to control those costs."

Chip Flory, editor of the Pro Farmer newsletter, which organizes the yearly crop tour, said farmers benefit from competition not industry consolidation.

As an example, he said competition in the seed industry between rivals Monsanto Co and Pioneer Hi-Bred, a unit of DuPont has slowed the rise in seed prices and led to better customer service.

"What farmers need is competition among the input suppliers. That competition is working for us in seed. If we lose competition on the fertilizer side," he said, shaking his head as his voice trailed off.

Joe Wise, who has been farming for more than 60 years in south-central Indiana, said consolidation in the fertilizer industry would likely push up prices.

"The less competition you have, the more control they (the fertilizer companies) have over prices," Wise said.

In 2008, when potash prices soared to record highs alongside corn and soybean prices, Wise nearly cut his potash application in half. But last autumn, when local potash prices decreased to $450 per short ton from a high of $850 in 2008, Wise increased application to about 50 tons for his roughly 2,000 acres of crops.

"If it (the price) stays down, I'll probably hit it hard again this fall," Wise said. (Additional reporting by Michael Hirtzer and Sam Nelson; Editing by Marguerita Choy)