Fertilizer costs had been already working purple sizzling this yr earlier than a European vitality disaster fanned the flames, doubtlessly including to a pinch on farmers within the U.S. and all over the world and stoking worries about meals inflation.
“It’s virtually like an ideal storm of various causes that most likely has quite a lot of upside in worth for totally different macronutrients,” stated Samuel Taylor, Cleveland-based govt director of analysis at Rabobank, in a cellphone interview.
Pure gasoline is a key ingredient within the course of used to make nitrogen-based fertilizers used on a vary of crops, together with corn and wheat. Pure gasoline accounts for 75% to 90% of working prices within the manufacturing of nitrogen, Taylor famous.
U.Okay. natural-gas futures have surged greater than 340% to date in 2021, prompting the shutdown of fertilizer factories within the nation and elsewhere earlier this yr. Henry Hub pure gasoline futures, the U.S. benchmark, ended Tuesday at an almost 13-year excessive. However gasoline futures pulled again this week after Russia stated the nation would honor its commitments and will find yourself exporting document quantities of the gasoline, however costs stay traditionally elevated.
Nitrogen costs have been correlated, with a lag, to pure gasoline costs, Taylor stated. Which means any run-up in natural-gas costs within the North American market can be poised so as to add to rising nitrogen costs.
Nitrogen fertilizers are an important enter for corn and wheat.
Entrance month urea futures for supply at Gulf of Mexico ports traded at $680 a ton on Thursday, up 168.2% from its Dec. 31 degree of $253.50 and greater than triple its degree from 12 months in the past, based on Dow Jones Market Knowledge.
Different fertilizers have additionally seen a pointy rise in costs for quite a lot of causes.
Diammonium phosphate, or DAP, futures traded at $682.50 a ton, up 74.3% year-to-date and 91.2% over the past 12 months.
Bloomberg’s Inexperienced Markets Weekly North America Fertilizer Value Index stood at 923.08 on Oct. 1, its highest studying since an all-time excessive simply shy of 930 in August 2008, and exhibits no indicators of reducing. The index makes use of benchmark costs of gulf coast urea, U.S. corn belt potash and NOLA barge DAP. The index is worth weighted primarily based on the annual international demand of every nutrient.
However there’s extra to the bounce in fertilizer costs, which bottomed out in the summertime of 2020 after a multiyear decline, than pure gasoline correlation.
Josh Linville, director of fertilizer at Stone X, pegs the beginning of the turnaround to the derecho, a devastating line of storms likened to an “inland hurricane” that introduced devastating excessive winds throughout Iowa and different elements of the Corn Belt in a 14-hour pounding on Aug. 10, 2020.
The occasion appeared to spark a turnaround for what had been a long-running slide for grain markets. As costs improved, expectations for fertilizer gross sales rose, as costs started to show round, he stated, in an interview.
In 2021, numerous supply-related components have helped gasoline the run-up. These vary from dangerous climate, with Hurricane Ida in late August interfering with shipments and shutting down ammonia crops close to the U.S. Gulf Coast.
Sanctions on Belarus may curtail the nation’s exports of potash, a key ingredient in fertilizers used on crop acres, analysts stated. In the meantime, a few of China’s largest fertilizer producers in July moved to halt exports of phosphate, information reviews stated, in a bid to make sure ample home provides amid rising costs.
The availability-driven nature of the rally is regarding, Linville stated, drawing a distinction to the extra demand-driven worth rise that drove worth will increase in 2008.
The analyst stated he’s now cautious of predicting how excessive costs may go.
“That is much less about fertilizer and that is extra about international macro vitality costs, if you’ll,” Linville stated.
A pointy run-up in fertilizer costs will likely be a supply of ache for farmers, however producers and shoppers ought to maintain the scenario in perspective, stated David Widmar, an agricultural economist and co-founder of Agricultural Financial Insights, a analysis agency.
Based mostly on knowledge tracked by the Agriculture Division, corn fertilizer prices in Illinois now stand at round $165 an acre versus round $140 this previous spring and round $85 to 90 a yr in the past, Widmar estimated That’s a giant enhance, however the revenue outlook nonetheless seems sturdy.
Particularly, Widmar pushed again towards hypothesis that rising nitrogen costs would lead farmers subsequent spring to reduce on corn planting in favor of soybeans. Soybeans and different legumes kind a symbiotic relationship with nitrogen-fixing micro organism, permitting them to satisfy a lot of their nitrogen wants by changing atmospheric nitrogen into ammonia.
So whereas soybeans do want much less nitrogen fertilizer than corn, they require roughly the identical phosphorus and potassium, Widmar stated. “There actually isn’t a short-run technique that will get you out of that phosphorus and potassium conundrum,” he stated.
Based mostly on worth expectations, corn nonetheless seems like a way more worthwhile wager for producers, stated Widmar, who expects to see a rise in planted corn acres in 2022 regardless of rising nitrogen prices.