Fertilizer prices have risen to record highs as farmers finish up this year’s harvest and begin making plans for next year’s planting, rising input costs and potentially reducing profits for next year’s crop.
Since the pandemic struck, there has been a “perfect storm” of conditions that have contributed to a rise in fertilizer prices.
Extreme weather events, plant closures, sanctions, and rising energy costs, particularly in China, have all contributed to historically high fertilizer prices throughout the year. Currently, there are numerous reports that Europe is facing an energy crisis.
Prices for fertilizer have surpassed the price peaks that were set during the financial crisis of 2008-2009, according to several recent reports. According to some estimates, the cost of fertilizer for U.S. farmers could rise by as much as 16 percent.
Farmers are expected to plant more acres of corn in spite of higher costs for fuel and fertilizer, according to most market experts.
Fertilizer prices are also rising because crops are being grown all over the world at any given time, driving up demand for the product. Meanwhile, in North America, crops are being harvested and replanted in countries such as Argentina, Brazil, and New Zealand.
As corn and soybean prices rose around the world, farmers made their own calculations about what crops they could grow for a profit, and those calculations almost certainly included the purchase of fertilizer.
One of the reasons given for the rise in fertilizer prices is the global increase in crop production. Grain and oilseed production is expected to rise by 3.2% this year, or about 106 million metric tons more than in 2017.
With the exception of the United States, China, Ukraine and South America are leading the global acreage expansion in terms of growth. Wheat, coarse grains, and major oilseed crops were expected to occupy 2.03 billion acres worldwide in 2021-2022, according to USDA’s Foreign Agriculture Service. The global demand for fertilizer is expected to rise as a result of this expansion.
Ironically, the global demand for fertilizer is being driven up by the current drought. More than a year of drought has taken its toll on Brazilian hydroelectric dams, which supply much of the country’s power. This has left reservoir levels low. Power companies in the area have been forced to use more expensive natural gas-fired plants to generate electricity.
The price of natural gas, which powers 40% of the country’s electricity, has been volatile this year. Because the processes that create fertilizer necessitate energy, it’s an important input for the plants that make it. Nitrogen-based fertilizers use natural gas as a key component.
There was a surplus of nitrogen fertilizer supplies in 2020, with many suppliers still holding onto supplies from the previous year. However, as crop acreage around the world has grown, the oversupply of N-based fertilizer has been depleted by demand. Since the beginning of 2021, the cost of producing fertilizer has increased due to higher natural gas prices, according to experts. Due to last year’s oversupply and the pandemic’s impact on production, that situation was exacerbated.
To put it another way: Nutrien’s figures show that the cost of anhydrous fertilizer went up by 13% in the first quarter of 2021 compared to the same period in 2018.
Plants from China
Processing plants in China have been forced to shut down or reduce production due to a shortage of electricity. Soybean crushers were among them, churning out meals for livestock feed and oil for cooking. It’s a win-win for the country, which plans to host the Olympics in 2022, as shutting them down will help conserve energy.
The Chinese government has announced a series of power outages ahead of the Winter Olympic visitors, in an effort to improve the air quality.
For instance, Bloomberg reported in another part of Asia that the Indian government has warned and directed fertilizer producers in that country that it will not increase subsidies on the phosphorus-based goods produced there.
Since the global costs of raw materials – ammonia and phosphoric acid, much of which is imported – have continued to rise, these companies must take their margins into account. Unless their government allows them to raise prices, as input costs rise, it appears that they will not be able to afford their production costs.
Fertilizer costs rose by the most since 2015 for wheat and canola growers in Canada, according to government data. Farmers’ total input costs have risen to their highest level since at least 2002, according to Canada’s Farm Input Price Index.
Compared to a month earlier, late September potash prices in the U.S. had risen by 6%, while the average price of DAP hit a decade-high $702 per ton. The most widely used phosphorus fertilizer in the world is diammonium phosphate (DAP).
According to DTN, potash prices had risen to an average of $598 per ton.
The prices of four fertilizers rose by 3% this month, compared to the same period last year. As a comparison, MAP was $776 per ton; urea was $572; anhydrous was $762; UAN was $381; and urea-nitrate was $572.
According to industry analysts, the cost of fertilizer is expected to continue to rise. High natural gas prices are forcing European fertilizer producers to close their doors. According to a recent announcement from the fertilizer manufacturer CF Industries, it has no idea when it will be able to resume production at two facilities in the United Kingdom.
Yara, a European fertilizer company, has been forced to limit production at several of its plants because of record-high natural gas prices, which are affecting ammonia production margins. As much as 40% of Yara’s European ammonia capacity will be shut down, the company announced.
Expanding its reach across the globe
According to the World Bank, rising fertilizer prices are largely due to increased demand in major crop-growing regions around the world. Commodity prices have risen as a result of increased production by farmers around the world due to scarcity and high demand on the export market.
A rise in farm income has accompanied the rise in commodity prices, and this has led to an expansion of cropland. Farmers increased their application rates of important nutrients like phosphates and potash thanks to the money they received from reasonable commodity prices.
The World Bank reported that strong demand for phosphate and urea fertilizers pushed up the prices of these products.
Fungicide prices are expected to rise in 2021 before falling in 2022, according to the report’s predictions. Global tensions, cropland expansion rates, and fertilizer use policies all play a role, as the World Bank pointed out.
Additionally, rising input costs have contributed to the rise in fertilizer prices. Sulfur and ammonia prices have risen sharply as refineries have had to reduce production due to Covid and their own limited supplies. According to the report, the cost of urea feedstocks has also increased.
Early in 2021, as a result of some unusually cold weather, the price of natural gas shot up. A record high price for natural gas was set in early 2021 for both Asian LNG (liquid natural gas) and European and Western US natural gas.
Responses from the industry can be facilitated.
The industry has “ample capacity to respond” to high demand, according to the World Bank, but it may take some time to ramp up production, meaning that prices will remain high for the time being. Phosphorus imports from Morocco and Russia are currently being affected by countervailing duties imposed by the United States.
Urea and ammonium nitrate subsidies may be subject to the same kinds of trade sanctions, according to the report. It is possible that Russia-Belarus tensions and stricter environmental policies in China could raise potash prices.
About 30 million metric tons of nitrogen fertilizer are produced in China each year. China’s output is halved by the combined efforts of the United States and India. The fifth-largest producer, Indonesia, produces less than 5 million metric tons per year, compared to Russia’s 10 million metric tons.
The United States produces less than 5 million metric tons of phosphate fertilizer each year, compared to China’s 20 million metric tons. In terms of production, the United States is far ahead of countries like India, Russia, and Morocco.
Nearly 15 million metric tons of potash are produced in Canada each year. Belarus and Russia each produce about half of that volume, while China and Israel each produce smaller amounts of the same material.
