Although the Russian war with Ukraine has been pinpointed as the leading cause of high fertilizer prices, the price of nitrogen fertilizer began to increase in May of 2021, long before Russia invaded Ukraine on February 24, 2022. The increases in fertilizer prices in 2021 were caused by supply and demand factors. On the supply side, increases in natural gas prices and shipping costs likely influenced fertilizer prices (Smith, 2022). Additionally, corn futures prices increased drastically in May 2021, incentivizing farmers to apply more nitrogen per acre. Following nitrogen application, fertilizer prices dropped slightly before increasing again in February of 2022 due to the Russian invasion of Ukraine, which caused supply chain disruptions in nitrogen fertilizer exports. Since September, fertilizer prices have dropped significantly. In this article, we reframe fertilizer prices to look more closely at the recent declines in fertilizer prices. Specifically, we focus on the fertilizer price to new crop corn futures ratio. Using this ratio, we can frame fertilizer prices in a form allowing us to account for fertilizer and corn prices.
Figures 1, 2, and 3 show the plotted ratio of fertilizer price to new corn futures ratio for NH3, urea, and UAN from 2020 to early March of 2023, respectively. Unsurprisingly for all three commodities, the lowest ratios occurred before the price increases in 2021. Following the 2021 price increases, the impact of the Russian-Ukrainian war sustained an already high nitrogen price. The red line in each graph depicts the 2023 nitrogen price relative to the price of corn. For UAN and urea, the ratio of fertilizer to new crop corn price has fallen below the 5-year average levels, whereas the price of NH3 is still slightly above the 5-year average. These results may indicate that ammonia fertilizers are still unreasonably high due to Russia being the second largest NH3 exporter, behind Trinidad and Tobago (World Bank, 2021).
Figure 1. NH3 (Anhydrous Ammonia) Price Relative to New Crop Corn Futures
Figure 2. Urea Price Relative to New Crop Corn Futures
Figure 3. UAN Price Relative to New Crop Corn Futures
As the ratio for NH3 remains above the five-year average, it may be time to look at alternative nitrogen sources. One nitrogen source of interest is urea, the nitrogen source furthest under the 5-year average. The average price of nitrogen/pound of urea is historically higher than that of NH3. However, this season, the current price per pound of nitrogen from both sources is similar, making the switch from NH3 to urea more appealing. If in-season nitrogen application is needed, the relative price of urea is historically lowest in June. However, it is worth noting that an escalation in Ukraine or a discontinuation of the Black Seas Grain Deal would likely cause the price of each nitrogen source to increase.
Smith, Aaron. “The Story of Rising Fertilizer Prices.” Aaron Smith, March 2, 2022. https://asmith.ucdavis.edu/news/story-rising-fertilizer-prices.
World Integrated Trade Solution. “Ammonia; Anhydrous Exports by Country |2021.” World Bank. Accessed March 20, 2023. https://wits.worldbank.org/trade/comtrade/en/country/All/year/2021/tradeflow/Exports/partner/WLD/product/281410.
Photo by Todd Trapani: https://www.pexels.com/photo/corn-field-1382102/