Sky-rocketing fertilizer prices have dominated ag industry discussions over the last year, and for good reason. By now, the peaks & valleys of the price chart below should be familiar, and most of you remember living through these price cycles. The price climb that began in late summer 2020 is the most dramatic since 2008 and we are now seeing spot prices more than double and even triple the average prices seen over the 4-5 years preceding 2020. The discussion generally starts with: what is causing these kinds of prices? In this particular case, there does not seem to be any one culprit. Instead, it might be best described as a perfect storm of factors that are all creating upward price pressure.
Demand: An increase in commodity prices (particularly corn price) is expected to lead to an increased demand for fertilizer. Corn rose above $7.00/bu in the summer of 2008; fertilizer prices spiked soon after. Again in 2021, corn broke through $7.00/bu, and we have seen what has followed with fertilizer. There is an obvious connection. What about residential fertilizer demand? We know the Covid Era of increased work from home created higher demand for landscaping, lawn equipment, etc. People were home more often, therefore paying more attention to the lawn and garden. Without finding the specific data, it is a safe bet we are collectively demanding/using more residential fertilizer, as well.
Supply: Often times, demand is met by ramping up supply to satisfy the increased need and moderate upward price pressure. However, we find the fertilizer market (along with so many other industries) currently overwhelmed with supply struggles. Global natural gas prices have increased the cost of fertilizer production, some traditional exporting countries are shipping less to ensure their own domestic supply, and the geo-political landscape of trade battles and imposed tariffs have further slowed supply. Finally, physical supply chain disruptions and increased cost of product transportation have slowed supply to the point of questionable availability at given times/locations.
The challenge moving forward is that we have yet to see a light at the end of the tunnel. History would suggest prices will eventually ease, but no evidence today indicates any relief throughout the 2022 production season. Next week, we will examine the farm level financial impacts of producers enduring higher input costs. Tomorrow (Southern Ag Today, Jan 27, 2022), Dr. Andrew Muhammad will dig a little deeper into the trade/import markets for specific fertilizer products.
Monthly Average Fertilizer Nutrient Prices, January 2000 to October 2021
Reference:
Outlaw, et al. Economic Impact of Higher Fertilizer Prices on AFPC’s Representative Crop Farms. Texas A&M University System, Agricultural and Food Policy Center Briefing Paper 22-01. January 2022.
Klose, Steven, and J. Marc Welch. “The Perfect Fertilizer Storm.” Southern Ag Today 2(5.3). January 26, 2022. Permalink
