It is well known that farmers will need to pay more for this year’s crops.
The American Farm Bureau Federation’s annual convention is this week and farmers want to know how long the increase in input prices will last.
Some crop nutrients saw a 150% increase in price due to a rise in global demand for fertilizer in 2021 as global supply fell.
Experts have been arguing for months that the world is becoming more hungry and that crop production must increase.
Experts say it is easier to see the demand side of the fertilizer story than the supply side.
It is the supply side of the fertilizer story, which begins to flush out the real problems of higher prices.
A Global Commodity
The U.S. is third in fertilizer production, but it only uses 10%.
Because the U.S. farmers are the world’s leaders in soybean and corn production, fertilizer use is higher than its production. 70% of the U.S.’s nutrient use can be attributed to the production of wheat, soybeans, and corn.
Therefore, the U.S. has become a net importer for fertilizer.
According to AFBF economists the key to predicting when the current price surge will end is to know the future pattern of global fertilizer demand as well as the reliance on the largest fertilizer producers worldwide.
“It’s important to note that not only does fertilizer consumption vary around the world but so does production,” Veronica Nigh, senior economist at American Farm Bureau Federation (AFBF), told convention attendees in Atlanta on Saturday.
Russia, China, Saudi Arabia and Japan remain the largest exporters in the field of nitrogen fertilizer.
China, Morocco, Russia are the leaders in exports of phosphate fertilizer.
Canada, Belarus, and Russia are the leaders in global potassium exports.
“Even the most powerful producers can only produce 10-25% to meet the world’s needs. Nigh says that disruptions can happen in many different places and have an impact on fertilizer availability, prices, and other factors around the world.
Acreage increase
The 2021 increase in crop nutrient prices was caused by a variety of factors. Weather-induced crop disruptions, Covid-19 and trade waivers all contributed to higher crop production costs.
According to AFBF economists, a rise in U.S. acreage and global acreage could prevent fertilizer prices falling in the future.
“Our U.S. planted acreage (is up) but global planted area is also up. Look at Brazil and Argentina as our competitors. They have had very difficult growing seasons. They will need to increase fertilizer use to achieve the desired yield,” Shelby Swain Myers (AFBF economist) says.
Myers stated, “That global need has driven farmers to say: ‘I need more fertilizer.’
Price hike
According to an AFBF report, the U.S. ammonia prices increased 210% between September 2020 and September 2021. Liquid nitrogen rose 159%, urea rose 155%, potash rose 134%, MAP rose 125%, and DAP rose 100% from September 2020 to September 2021. Due to a shortage in fertilizer supply, the rising input costs that account for 15% of total cash costs of U.S. farms are expected to continue to rise through spring 2022.
Natural Gas
As natural gas prices go, so go fertilizer prices.
According to AFBF economists between 75%-90% of the costs for producing nitrogen are related to natural gases.
The pandemic reduced natural gas use, and plants decreased their consumption of the fuel. Meanwhile, as 2022 gets underway and the economy is recovering from the pandemic, demand for natural gas is going higher.
Swain Myers stated that natural gas production and its use are both global issues. Since March 2021, natural gas prices in the European Union have risen by more than 300%. The sharp rise in raw materials has caused EU’s nitrogen producers to shut down. These prices are being passed onto end-users. This is not a simple story about nitrogen. It’s also a story of phosphorous, potassium and it’s being passed on the U.S.
Price Outlook
After the Atlanta presentation by the two AFBF economists, the first farmer question was about the outlook for the ending of the fertilizer price rise.
According to AFBF economists, U.S. retailers don’t anticipate a significant shortage of product in 2022’s planting season.
Swain Myers states that “they (retailers), just can’t function with a 110% supply expectations when there could be disruptions worldwide.”
Some experts see this sharply rising fertilizer price environment for the next six-months, but others are uncertain.
“We talked about 2008-09 fertilizer prices and how they resolved themselves after 18-24 months. With this one, we don’t know. There are many issues. Nigh says, “You solve one problem and another arises.”
“We should be aware that some fertilizer imports to the U.S. have been subject to additional antidumping and countervailing duty. It is not helping. Nigh said that the fertilizer sector is something that should be resolved.
In 2021, farmers who normally purchase production material at the end each year for tax purposes were unable to do so in the same manner.
Crop prices are encouraging farmers increase acreage to meet increased demand for fertilizer.
“We’re going to see a lot more farmers and ranchers examine their books this year, analyze the return on investment, and analyze the break-even points. The increased crop prices are causing a lot of momentum in input prices. Nigh said that we are now barely breaking even.
Nigh said, “It’s a punch to the gut to consider all of that potential profit increase (in crop inputs).”
Source: Successful Farming
