It is well known that farmers will have to pay more to produce this year’s crops.
Farmers attending this week’s American Farm Bureau Federation annual convention want to know how long the rising input prices will last.
Due to a peak in global fertilizer demand in 2021 as global supply fell, the price of some crop nutrients has jumped by up to 150% year-over-year.
For months, many experts have been explaining that there is a hungrier world that needs an increase in agricultural production.
The demand side of the fertilizer story is easier to tell than the supply side, experts say.
It’s the supply side of the fertilizer story that begins to flush out the real issues of higher prices.
A global commodity
While the United States is the third largest producer of fertilizer in the world, it uses only 10% of the world’s fertilizer reserves.
However, because American farmers are the world leaders in corn and soybean production, the country’s fertilizer use exceeds its production. In fact, 70% of nutrient use in the United States can be attributed to the production of corn, soybeans, and wheat.
Therefore, the United States is a net importer of fertilizer.
The key to knowing when the current price spike will end, according to AFBF economists, is knowing the future pattern of global fertilizer demand and the dependence of the world’s largest fertilizer producers.
“It should be noted that not only does fertilizer use vary around the world, but production also varies,” Veronica Nigh, senior economist for the American Farm Bureau Federation (AFBF), told attendees on Saturday. convention in Atlanta, Georgia.
In the area of nitrogen fertilizers, Russia, China and Saudi Arabia remain the largest exporters.
Exports of phosphate fertilizers are dominated by China, Morocco and Russia.
In the potassium market, Canada, Belarus and Russia lead the world exports.
“Even the largest producers only produce 10 to 25% of the world’s needs. So that means you can have disruptions in many different places which end up impacting the availability and prices of fertilizers in this producing country and users around the world, ”says Nigh.
Increase in area
Looking back, there was a grocery list of factors that contributed to the 2021 surge in crop nutrient prices. For example, weather-induced plant disruptions, Covid-19, trade waivers, trucking issues, fertilizer plant maintenance delays, and global supply / demand factors all combined to form a perfect storm for higher production costs.
In the future, an increase in acreage in the United States and around the world could prevent fertilizer prices from falling, AFBF economists say.
“Our planted area (in the United States) is increasing, but the global planted area is also increasing. If you look at our competitors like Argentina and Brazil, they have had tough growing seasons. Now they will have to increase the use of fertilizers to get the yield they are looking for, ”says Shelby Swain Myers, AFBF economist.
Myers added: “This global demand has prompted farmers to say ‘I need more fertilizer’.”
From September 2020 to September 2021, prices of ammonia in the United States increased by 210%, liquid nitrogen by 159%, urea by 155%, potash by 134%, MAP increased by 125 % and 100% DAP, according to an AFBF report. . Rising input costs, which account for 15% of total cash costs on U.S. farms according to the AFBF, are expected to remain high until spring 2022 due to a fertilizer shortage.
As natural gas prices go down, so do fertilizer prices.
Between 75% and 90% of nitrogen production costs are linked to natural gas, according to AFBF economists.
While the pandemic has reduced the use of natural gas, factories have reduced the volume of fuel. Meanwhile, as 2022 kicks off and the economy recovers from the pandemic, demand for natural gas is increasing.
“The production of natural gas, like its use, is a global problem,” says Swain Myers. In the European Union, natural gas prices have increased by more than 300% since March 2021. Thus, EU nitrogen producers are closing, due to the sharp increase in raw materials. These prices are passed on to end users. And, it’s not just a nitrogen story, it’s a phosphorus story, a potassium story, and unfortunately those prices are passed on to the United States. ”
Following the presentation of the two AFBF economists in Atlanta, the first question from farmers was about the prospects for stopping the rise in fertilizer prices.
U.S. retailers don’t expect a major product shortage for the 2022 planting season, according to the AFBF economist.
“They (the retailers) just can’t operate with a 110% supply expectation when there could be disruption on a global scale,” Swain Myers said.
While some experts see this sharply rising fertilizer price environment for the next six months, others remain uncertain.
“We talked about the 2008-09 fertilizer price spike and how it resolved after 18-24 months, with this one we don’t know. There are a lot of issues. solve one problem and another pops up, ”Nigh said. said.
“We have to keep in mind that additional anti-dumping and countervailing duties were imposed on some fertilizer imports into the United States last year. That doesn’t help. It’s something we should be working on. a solution, regarding the fertilizer sector, ”Nigh told AFBF convention attendees.
Moreover, farmers who normally buy production equipment at the end of each year for tax purposes were not able to do so, in the same way, in 2021.
In addition, crop prices encourage farmers to increase the cultivated area, thus creating increased demand for the use of fertilizers.
“We’re really going to ask a lot of farmers and ranchers to look at their books a lot more carefully this year, analyze that ROI and analyze the breakeven levels. Frankly, right now, input prices are really booming. increase in crop prices. And now we’re barely breaking even, ”Nigh said.
Nigh added: “It’s a blow to look at all of this potential increase (in profit) to be spent on crop inputs.”