Fertilizer Factors

Fertilizer Factors

By Bethany Baratta, bbaratta@iasoybeans.com

To help understand the factors impacting the price of fertilizers, we asked Jason Troendle, director of market intelligence and research at The Fertilizer Institute (TFI), to weigh in.

Farmers have seen significant price increases in fertilizer prices; what’s contributing to this?

Within the last two years in the fertilizer industry, we’ve had a perfect storm of issues that have caused the prices growers are seeing today. One of the key things we continue to see is rising input costs for fertilizer production. The production of nitrogen fertilizers is heavily reliant on natural gas, for example. Natural gas prices are around $7.80 per million British thermal units (Btu), up nearly 300% from a year ago.

Sulfur – used to make DAP, MAP and phosphate fertilizer – also has seen an increase in prices related to supply challenges.

Meanwhile, we’ve seen significant trade/market disruptions domestically and abroad. The February 2021 freeze and Hurricane Ida lessened domestic production. Various geopolitical challenges have restricted exports.

How have the Russia-Ukraine conflict and other geopolitical events impacted the industry?

Even before the Russia-Ukraine conflict, Russia put quotas on fertilizer exports. Since the war began, fertilizer exports from Russia have continued to be disrupted, as well as natural gas flows for European nitrogen producers.

Meanwhile, the U.S. and other countries put sanctions on Belarus due to the actions of their government. Belarus produces and exports about one-fifth of the global potash supply. More recently, Belarus seems to have an agreement with Russia to move some potash into Russia and out from there to the worldwide market. It is yet to be seen how this will impact the global market.

China put in export restrictions that essentially took the product off the market in late 2021, which has continued into 2022. China has historically accounted for 25% of the global phosphate market. Any time you cap or reduce the global supply, it puts upward pressure on price.

In 2021, the U.S. had more fertilizer imports of nitrogen, phosporous and potassium (N,P,K) than the average level of imports between 2017-2020. In 2020, phosphate fertilizer imports from Morocco and Russia were affected by countervailing duties on products from those countries. Today we’re sourcing phosphates from more countries, such as Saudi Arabia, Jordan, Australia, Mexico and Lithuania, due to continued strong demand.

What can be done to increase fertilizer supplies or produce more domestically?

In the short run, there’s not a quick lever we can pull to have a large increase in supply, unfortunately. Nitrogen facilities and phosphate and potash mines take significant capital investments to build and a few years to bring online.

At the same time that we have seen supply challenges, we’ve also seen a jump in total nutrient demand. From the 2019-2020 growing season to 2020- 2021, we’ve seen a 6% increase in global demand for nutrients—(N, P, K).

The U.S. has one of the most efficient, environmentally friendly, robust domestic fertilizer industries globally.

We’re producing just as much nitrogen today in the U.S. as in 2000 with slightly fewer and more efficient facilities. One of the challenges is access to natural gas to produce nitrogen and being able to remain globally competitively with low-priced natural gas in Russia and other locations. Access to an affordable and reliable natural gas supply could help facilitate further investment in the industry.

Phosphate and potash (potassium) are both mined minerals. While the U.S. is blessed with phosphate, it can be upward of 12 years to get a permit to expand or open a mine, limiting the industry’s ability to respond efficiently or effectively when global supplies are reduced. There are very limited potash reserves in the U.S., leading to heavy reliance on Canada and imports for those nutrients.

What is TFI’s role in balancing the needs of farmers and the fertilizer industry?

As a representative of the industry, we’re trying to share what’s going on with the fertilizer markets so people are informed and can make appropriate business decisions. Understanding the industry drivers can help mitigate some risks in this volatile environment.

With high farm input costs, including fertilizers, everyone wants the products we’re putting on the field for the crop to be used as efficiently and optimally as possible. TFI, fertilizer producers and retailers promote the use of 4R practices – using the right source, the right rate, the right time and the right place – when growers are applying nutrients to help achieve this goal.

The industry is also constantly looking for innovations to improve nutrient use efficiency. We’re working with the Environmental Protection Agency through the Next Gen Fertilizer Challenge to advance agricultural sustainability in the U.S. by improving the efficiency of fertilizers to increase crop yields while reducing the impact of fertilizers on the environment.

What else should growers know?

We recognize this is a challenging time, and we don’t take that lightly. We highly encourage growers to work with their retailers and suppliers and utilize any tools they can to mitigate risk.

What are you watching that will impact pricing and availability to farmers?

1. The Russia-Ukraine conflict: What that means for global energy and fertilizers.

2. Natural gas prices: We’ve seen those fluctuate with the Texas export facility fire and other disruptors. We’re trying to make up for some of the lack of Russian natural gas to Europe with U.S. natural gas exports. How do all these items affect the cost of natural gas domestically for our fertilizer production?

3. Crop success: How it translates to fertilizer demand for fall and next spring.

4. Natural disasters: Are we going to have another hurricane or an unexpected winter storm that will cut off a percent of our natural production as it did with Hurricane Ida or the Storm Uri?

5. China: They were supposed to start exports in June but largely haven’t. If they ease exports restriction, it will allow more products to flow onto the global market, which will help. But when?

6. Demand: Where will commodity prices be and what will farmers’ decisions be in terms of what crops they plant and how much fertilizer to apply? If farmers change planting plans or application rates and it softens demand, it changes the market.