Fertilizer prices soar amid perfect storm
With fall fertilizer application season approaching, farmers are facing a hefty price tag for nutrient management. Fertilizer prices have been rising over the past year with no signs of slowing down.
“Fertilizer prices are expected to approach record high levels in 2022, bringing costs to the farmer up with them. We are looking at prices 75% higher than at the beginning of the year. Nitrogen prices are especially high, and some suppliers don’t have a price on nitrogen because they are worried. They won’t have as much to sell as in past years or can’t keep up with the daily price increases,” said Jason Perdue, who farms near York and sits on the Nebraska Farm Bureau board as an at-large member.
Economists agree there are many factors coming together to cause this storm of events. Increased global demand, freight costs, higher chemical prices, shipping concerns, plant shutdowns, politics and trade disputes all contribute to fertilizer price increases. Ultimately, that means even if commodity prices remain
high in 2022, costs are going to eat into margins.
“We’ve seen production shutdowns in Europe and China. Natural gas prices, which is a key feedstock in fertilizer,
is up over 80% this year. These have combined to limit supply. Of course, we had higher commodity prices. So, demand for fertilizers was higher this year too,” said Nebraska Farm Bureau Senior Economist Jay Rempe.
International trade also plays a factor in the price of fertilizer, especially with current tariffs on fertilizer coming
into the country. The U.S. placed tariffs on imported potash and is contemplating tariffs on nitrogen imports. This increases costs for farmers.
“In addition, China is a big potash producer. They have shut off exports because they’re worried about supplying
their own needs within the country. So that’s contributed to a worldwide short-fall, which pushes up prices as well,” Rempe said.
According to the price indexes from the USDA, fertilizer prices are approaching levels not seen since 2015. According to Rempe, potash prices have set a 10-year high and the trend should continue into 2022.
“The situation that we’re in is going to take a while to get better. I would recommend that producers visit with their
fertilizer supplier, particularly on pricing, but also talk about the availability of supplies. Some producers have already told me they are unable to lock in a price for supplies,” he said.
Perdue is making sure he locks in pricing, so he has fertilizer product for the next growing season.
“It’s important to remember to sell some bushels of corn or soybeans for next fall to match your fertilizer purchase. This not only locks in a price and supply for fertilizer now, but also protects yourself from negative market changes,” Perdue said.
Things to consider for 2022 regarding supply chain problems
As the 2021 production year winds down, expect the supply chain problems, shortages and higher input prices materializing this year to continue into 2022. Understanding this riskier environment and the impacts to your operation is important when making decisions for next year, said Jay Rempe, NEFB senior economist. Here
are a few things he suggests you keep in mind.
- Talk with your input providers (fertilizer, chemical, seed, feed, equipment, fuel, etc.) about your projected needs. Discuss whether it may make sense to lock in prices now or wait until later. Remember, they are dealing with challenges, too! Communication is a two-way street, andit’s much smoother if traveled with a level head and a plan.
- Develop production budgets and know your costs. Run the projected price increases through your budgets to know how they impact your bottom line and to inform your management decisions. To get started, check out the new online budget tool developed by the UNL Center for Agricultural Profitability at cap.unl.edu/abc.
- Make a marketing plan based on your 2022 production decisions and projected costs. Consider forward sales to protect your margins.
- Be flexible with production plans and identify opportunities. Understand that 2022 will likely contain many unique challenges that will require adjustments and modifications to your plans. Engage in “what if” planning. What if the fertilizer formulation you want to apply is not available? What if hay prices continue to increase? What if glyphosate is not available? By doing so, you can be prepared if the unexpected happens.
- Meet with your lender, crop insurance provider and others important to your operation to talk about next year’s needs, wants and wishes. Have a plan in place and be honest about changes you are thinking of making in the operation, and how your profitability outlook may allow for, or restrict, your plans. Transparency is beneficial for everyone involved.
Next year will provide unique challenges. Communication, flexibility and planning will help you make informed decisions and achieve a successful year.
