Fertilizer prices continue their upward trend
As farmers wrap up this year's harvest and begin planning for next year’s planting, they are finding that their fertilizer prices have soared to record highs – driving up input costs and potentially trimming profits for next year’s crop.
Like many things since the pandemic hit, it is a “perfect storm” of conditions that is contributing to the rising tide of fertilizer prices.
Fertilizer prices have been very high all year – driven up by extreme weather events, plant shutdowns, sanctions and rising energy costs, particularly in China. Now, multiple reports outline an energy crisis in Europe.
Several recent reports – one from the World Bank -- show that fertilizer prices have risen past price peaks that were set during the global financial crisis of 2008-2009. By some estimates, U.S. farmers’ cost of production could rise as much as 16 percent, due to the price of fertilizer.
Despite rising prices of fuel and fertilizer, however, most market experts believe that farmers will plant more acres of corn, despite those rising costs.
Another factor contributing to the rising price of fertilizer is that crops are being grown somewhere in the world at any given moment, which drives demand. While crops are being harvested in North America, they are being planted in Brazil, Argentina, Australia and New Zealand.
As farmers all over the globe saw price hikes in corn and soybeans, they made their personal calculations about what they could profitably grow and those decisions most likely included a fertilizer purchase.
This global expansion of crop production is one of the reasons analysts cite for continuing rate hikes in fertilizer prices. Global output of grain and oilseeds this year is expected to rise 3.2 percent – nearly 106 million metric tons over last year’s totals.
The ongoing global acreage expansion is being led by China, Ukraine, South America and the United States. Globally 2.03 billion acres were expected to be used in 2021-2022 for growing wheat, coarse grains and major oilseed crops according to the USDA’s Foreign Agriculture Service. This expansion is expected to further drive global demand for fertilizer.
Ironically, drought is also contributing to global demand for fertilizer. Brazilian power companies, where much of the nation’s electricity is supplied from hydroelectric dams, have experienced more than a year of drought which has left reservoir levels low. Power companies there have had to resort to generating power from more expensive natural gas-fired plants.
Natural gas accounts for 40 percent of electrical generation in the United States and prices for natural gas have been fluctuating this year. It is also an important input for the plants that produce fertilizer because the processes that create fertilizer require energy. Natural gas is also a key ingredient for nitrogen-based fertilizers.
Nitrogen fertilizer supplies were plentiful in 2020 with many suppliers having leftover 2019 supplies available to satisfy demand. But with the expansion of global crop acreage, that oversupply of N-based fertilizer has been used up. Experts say that higher natural gas prices have contributed to higher fertilizer production costs since the beginning of 2021. That situation was exaggerated by the accordion effect from last year’s glut, followed by production delays related to the pandemic.
As a result, the cost of anhydrous fertilizer rose 13 percent in the first quarter of 2021, compared to the previous year, according to figures from agricultural retailer Nutrien.
An energy crunch in China has forced processing plants there to shut down or curtail production because of limited electricity. Those included soybean crushers – producing meal for livestock feed and cooking oil. Shutting them down is saving energy as the country looks forward to hosting the Olympics in February 2022 and wants to present a picture of environmental stewardship.
Chinese officials have announced rolling power outages in an effort to clean up the air in advance of those Winter Olympic visitors.
In another part of Asia, Bloomberg reported that the Indian government has warned fertilizer producers that it won’t increase subsidies on the phosphorus-based products made there and also directed those producers to refrain from raising their price.
Those firms have to consider their margins as the global costs of the raw materials – ammonia and phosphoric acid, much of it imported -- have continued to surge. If their government doesn’t allow them to raise their prices, as input costs rise, it seems clear that they can’t cover their costs of production.
Canadian agricultural statistics showed that farmers there – large producers of wheat and canola – faced their biggest hike in fertilizer prices since 2015. The Canadian government’s Farm Input Price Index showed that total input costs to farmers have risen to the highest level since at least 2002.
In the United States, late September potash prices had risen significantly – 6 percent -- compared to a month earlier while the average price of DAP reached its highest price in ten years – $702 per ton. Diammonium phosphate (DAP) is the world’s most widely used phosphorus fertilizer.
Potash prices had reached an average price of $598 per ton, according to DTN.
Four fertilizers had price increases of 3 percent compared to last month. Monoammonium phosphate fertilizer (MAP) averaged $776 per ton; urea was $572 per ton, anhydrous $762 per ton and urea-ammonium nitrate (UAN) was $381 per ton.
Analysts who are assessing the fertilizer industry said costs are likely to continue to rise. European fertilizer manufacturers are being forced to shut down because of high natural gas prices. Fertilizer maker CF Industries recently announced that it planned to halt manufacturing at two facilities in the United Kingdom and in a statement the company said it has no idea when production there will be ramped back up.
Record high natural gas prices have caused another European fertilizer company, Yara, to limit production at several of its plants because of record-high natural gas prices, which are affecting ammonia production margins. Yara said it would be shutting down about 40 percent of its European ammonia production capacity.
Growing all over the world
Strong demand from major crop growing regions of the world is a key driver of rising fertilizer prices, according to the World Bank. Tighter supplies and strong demand in the export market have raised commodity prices, and encouraged farmers all over the world to grow more of these commodities.
Accompanying the higher commodity prices was higher farm revenue, which has also driven increased crop acreage. With the money from decent commodity prices, farmers increased their application rates of key nutrients like phosphates and potash.
The World Bank report noted that strong demand drove higher prices for phosphate and urea fertilizers.
The report projected that fertilizer prices would be higher in 2021 and then would ease in 2022. But the World Bank also noted that the projections depend on the pace of cropland expansion, geopolitical tensions and environmental policies related to fertilizer use.
Also contributing to the rise in fertilizer prices are higher input costs. Phosphates raw material costs, especially sulfur and ammonia, have increased sharply as refineries have had to curtail production due to Covid and their own limited supplies. The cost of urea feedstocks have also risen, the report noted.
Natural gas prices jumped early in 2021 due to some unusually cold weather. Spot Asian LNG (liquid natural gas) and European and western U.S. natural gas prices hit record highs in early 2021.
Industry can respond
The World Bank noted that the industry has “ample capacity to respond” to strong demand, but that it may take some time to ramp up the output, which will mean continued high prices in the short term. They also noted that countervailing duties imposed by the United States on phosphates imported from Morocco and Russia are currently disrupting trade flows.
There are indications that similar trade actions could be applied to alleged unfair subsidies for urea and ammonium nitrate, the report noted. Political tensions in Russia and Belarus could raise potash prices, as could new stringent environmental policies in China.
China is the world’s largest producer of nitrogen fertilizer – at about 30 million metric tons per year. The United States and India both produce about half the volume made by China. Russia produces about 10 million metric tons per year and the fifth-largest producer, Indonesia, makes less than 5 million metric tons.
China is also the world’s leading maker of phosphates for fertilizer at about 20 million metric tons per year, while the United States makes less than 5 million metric tons. India, Russia and Morocco trail U.S. production.
Canada is the leader in production of potash with nearly 15 million metric tons per year. Belarus and Russia each make about half of that volume; China and Israel produce lesser amounts.