Nitrogen, Other Fertilizer Prices Climb

Nov 12, 2021  | 7 min  | Ep4713

The farm sector is riding the input price rocket ship this fall as well.

Natural gas, the key ingredient in many products, hasn’t been at this level since the cold winter of 2013 that rolled into 2014.

The October spike is now trickling down to those looking to do some fall field work.

Colleen Bradford Krantz has more in our Cover Story.

The Ory family usually waits for spring before applying nitrogren-based fertilizer to their fields, but the recent spike in anhydrous ammonia and other fertilizer prices convinced the Earlham, Iowa row crop and cattle producers to make time last week.

Daniel Ory, Producer, Earlham, Iowa: “Fertilizer has gone through the roof, and that’s kind of why we are going after it as fast as we can now. To make sure we get what we locked in to try and help secure profits or make next year more profitable.”

Ory says they pre-purchased anhydrous ammonia in the summer, anticipating a supply crunch, but that price lock was dependent on application being completed before year’s end.

Daniel Ory, Producer, Earlham, Iowa: “That’s kind of why the rush now: You know with what prices have gone to, it makes it pretty difficult to get excited about next year….The ones that I talked to who hadn’t locked in seemed a little nervous, hoping for some better stuff in the spring.”

The USDA’s Illinois Production Cost Report from Nov. 4 shows that anhydrous ammonia, a nitrogren-based fertilizer, hit an average of $1,205 per ton, just exceeding the prices reported in 2008. Prices for other fertilizer ingredients and blends have also climbed dramatically.

Ben Bruggeman, Landus Cooperative: “Starting out in June, when we had pre-season prices, they were already high. Then going on throughout the season of pre-pay, trying to get people to commit to a price, and they just kept going up and up and up. Most of the growers I deal with haven’t seen this in their lifetimes.”

The commodity prices in most of the major grain markets have helped better position farmers to face this kind of financial challenge but Bruggeman, with Landus, says many are analyzing spreadsheets as they decide how to balance against increased input prices, particularly if ag chemicals and seed prices also run high in the spring.

The uncertainty of government support going forward makes planning even more difficult. U.S. net farm income in 2020 featured the highest percentage of government funds in recent history at 39 percent. That number is projected to be down in 2021 as COVID-related payments fall off, but the plans for 2022 support remains uncertain.

Ben Bruggeman, Landus Cooperative: “The things that they can focus on are their input costs, you know, anywhere from fungicide to your fertilizer, your seed. You have got to have all that down pat because that is something you can control. And the uncontrollables, like government subsidies and Mother Nature, you just kinda gotta roll with the punches on those.”

The owner of another retail provider of agricultural fertilizer and other supplies, AgHub Midwest, based near Menlo, Iowa, and Landus Cooperative’s Bruggeman say farmers are at least discussing planting less corn, a crop where nitrogen application is more critical.

Titan Immel, Ag Hub Midwest: “A lot of guys are taking a look at crop rotation, maybe not doing corn-on-corn, or maybe looking at a few more soybean acres.”

However, both men advised not rushing decisions.

Titan Immel, Ag Hub Midwest: “There’s a lot of instances that are, you know, three times the cost per any unit and you know it’s a big sticker shock. I’m just trying to work through that with growers… to regroup and put together a plan versus, you know, just fear buying.”

Samuel Taylor, executive director of research for farm inputs at Rabobank, said the pattern shift began in the spring.

Samuel Taylor, Rabobank: “Right up until about May of this year, there was quite a nice trend line where commodity prices and fertilizer prices moved in a relative lock step. I’d say since May, you’ve seen a fall-off in the corn and soybean prices and at that point you’ve seen a relative dislocation between the price of fertilizers and the price of commodity. …And that’s kind of shifted the affordability of these inputs.”

Taylor, based in New York, said most of the causes are related to various public policies decisions, both in the U.S. and elsewhere.

Samuel Taylor, Rabobank: “You look at things like sanctions on the Belarusian potash production, which accounts for about 13 million metric tons globally. You look at other threats or risks of countervailing duties to products. You look at energy costs, so that’s both in China and in Europe, particularly on the nitrogen side. And then you look at other issues, like the export limitations on phosphates and urea. So you’ve gone from let’s say August of last year to May of this year, shifting from a demand-driven market, and since May of this year, you’ve really gone into a supply-constraint market.”

The market for natural gas, which accounts for 60 percent or more of the cost of producing anhydrous ammonia, is one of the key factors indirectly driving up nitrogen prices.

Samuel Taylor, Rabobank: “What you saw in Europe was high natural gas prices curtail massive amounts of production. Millions of metric tons of capacity coming offline. I think it’s something like 12 percent of ammonia production in Europe come offline and 25 percent curtailed.”

Taylor says farmers may be able to shift money they’ve set aside for new farm machinery if it’s unavailable due to supply chain or labor issues. However, he also encourages farmers to explore new options for boosting income, whether that’s trying an alternative crop or participating in the government’s carbon sequestration programs.

Samuel Taylor, Rabobank: “Farmers – and I include my septuagenarian father in this – like to do what they like to do….and sometimes you need kind of a glaring opportunity … There is still the potential for growers to basically be rewarded what they do best with historical things. If you look at the scorecard system for carbon sequestration rewarding you for no-tilling, well farmers have been no-tilling for a long time. Why not get a little bit extra on something like that?”

Samuel Taylor, Rabobank: “I could try to say something positive for the season. Let’s hope for good weather. Should we say that?”

By Colleen Bradford Krantz, for Market to Market,

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