Fertilizer Prices Continue Record Increase

High commodity prices continue to offer profit opportunities despite rising fertilizer prices, said an AgriLife Extension Service expert from Texas A&M.

Mark Welch, Ph.D., AgriLife Extension Grain Market Economist, Bryan-College Station, said manufacturers may get a sticker shock when pricing nitrogen fertilizers, but higher prices for crops like wheat and corn put those input costs into perspective.

Welch said producers who want to fertilize wheat fields now or prepare management plans for other commodities such as corn next season are seeing record prices for fertilizer from suppliers. The most recent and similar increase for nitrogen fertilizers such as anhydrous ammonia occurred between 2012 and 2014.

“Higher prices could cause manufacturers to pause,” he said. “It’s understandable. If you put together a budget, the input costs for fertilizer alone could be twice as high as a year ago, maybe even more.”

Anhydrous ammonia, the lowest cost nitrogen fertilizer widely used in commercial commodity production, has hit $ 1,000 or more per ton, compared to $ 495 per ton last year. The previous average price for anhydrous ammonia in the 2014 harvest season was USD 851 per ton.

Higher natural gas prices also contributed somewhat, but Welch said the price hike is primarily directly related to higher grain prices. When grain prices rise, fertilizer follows based on demand associated with producers’ response to opportunistic market conditions for their crops, which typically involves planting more acres and managing them for maximum yields.

While manufacturers may be holding back from rising fertilizer prices, the production value of an application is more positive than in previous years due to the higher grain prices, Welch said.

“I understand that watching fertilizer prices came as a shock and is a real concern for manufacturers,” he said. “But I want to emphasize that there are better marketing opportunities because the grain prices are so good.”

Welch said the cost of fertilizer per bushel continued to be better than when grain prices, including wheat and corn, were in the basement. For example, based on November 4th wheat prices, it would take 126 bushels to pay for a ton of anhydrous ammonia, while the same ton of fertilizer cost a producer 158 bushels of wheat in 2016.

Opportunities based on $ 7.50 per bushel wheat and $ 5.50 per bushel corn futures make the bottom line more positive compared to the cost of doubling the cost of fertilizer usage, he said.

The challenge for the manufacturers will be to minimize the risks associated with higher input costs and to maximize the price opportunities on the marketing side, said Welch.

Efficient fertilizer application will be an important part of budgeting this season, he said. He recommends evaluating the available soil nutrients through rigorous testing and pinpointing fertilizer needs.

Growers should also consider shared application and timing of fertilization to maximize harvest progress and avoid deterioration from environmental conditions, including rainy events, he said. Establishing nitrogen-fixing catch crops this winter can also be a good investment this year.

“This is a year where management decisions now could aid future budgeting and ultimately margins,” he said. “Whether crop rotations, catch crop cultivation, extensive soil examinations or the temporal and needs-based limitation of applications – producers want to use their resources as efficiently as possible.”

On the plant management side, Welch said it might be a good idea to buy fertilizer for future needs – or, if possible, contact dealers to set prices and deliveries due to high prices and potential availability concerns.

“Higher prices are one thing, but getting fertilizer when and where you need it is a whole different matter that is not very predictable,” he said. “Whether logistical problems such as shipping or truck problems could lead to delivery bottlenecks is currently unknown.”

Welch said the US imported nitrogen fertilizers from countries like Canada, Trinidad-Tobago, Russia and Qatar, but he had no current data on how heavily national consumption was dependent on other nations. From 2015 to 2019, the US increased ammonia-nitrogen fertilizer production and imports declined due to cheap domestic natural gas prices and strong corn production.

On the plant marketing side, Welch said setting contracts at current prices could reduce the risks associated with potential price drops in the futures markets. The crop success in the Midwest is driving US production. However, other nations like Brazil can affect the overall supply, while demand is driven by China’s increased feed needs as its pig herd rebuilds.

“Grain supplies are still very scarce and the demand factor appears to be stable,” he said. “The US crop has developed well this season and Brazil is expecting a bumper crop after a very short crop last season. The question is, where will prices go from here, and manufacturers now need to take this into account and incorporate this into their budgets. “

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