What’s Next in Fertilizer Markets?

Ask Nebraska crop producers what most concerns them right now and you’re likely to hear drought and rising input costs as the two most common responses, particularly the surge in fertilizer prices. Figure 2 plots the price history for fertilizers using the USDA National Agricultural Statistics Service (NASS) monthly national fertilizer price index. The values shown in Figure 2 are relative to an average index for 2007 through 2010. Net farm income and the farm economy in general were relatively stable between 2007-2010 so the period serves as a good basis for comparison. Values above 100 indicate higher prices relative to the 2007-2010 period and the inverse is true for points below 100. As Figure 2 illustrates, current fertilizer prices are well above those seen over the past decade. Prices have retreated some in recent weeks but still stand well above prices seen less than 18 months ago.

Figure 2. Fertilizer Price Index (100 = 2007-2010)

Source: NEFB calculations based on USDA NASS data

A recent article by John Beghin, an agricultural economist with the University of Nebraska, discusses the factors behind the run-up in fertilizer prices and recent developments in world fertilizer markets. Beghin writes the initial run-up in prices resulted from a perfect storm of factors including high demand, drought, high energy prices, COVID-related supply chain disruptions, and trade policies. More recently, the Russian invasion of Ukraine, trade policies, and other market disruptions have exacerbated the price surge.

Beghin says the natural gas market, an ingredient in the making of fertilizers, is key to understanding the rise in fertilizer prices. Natural gas prices spiked in 2020 due to weather-related production and COVID-related supply chain disruptions. The outbreak of war in Ukraine this year created more disruptions. Russia is a major supplier of natural gas to Europe and the war has resulted in natural gas prices in Europe reaching never before seen levels. This has induced U.S. natural gas producers to export as much as they can to Europe resulting in higher U.S. prices.

Natural gas prices in Europe and Asia are so high that many fertilizer producers in those regions have ceased production due to poor margins, only adding to global supply shortages. Trade sanctions on fertilizers, export bans or restrictions by Ukraine and China, and taxes on fertilizer exports by Vietnam have all served to keep supplies off world markets. In addition, U.S. trade policy, until recently, has increased the costs of fertilizer imports into the U.S.

Beghin concludes the outlook for fertilizer prices remains pessimistic. Improvements in several factors need to occur, plus mild winters in the U.S. and Europe, before any significant reductions in fertilizer prices will be seen. Crop producers must continue to hope that crop prices remain at levels to offset higher fertilizer prices.