U.S. fertilizer prices soar to record highs, natural gas volatility spawns "perfect storm"

On October 1, the Green Market North American Fertilizer Index (using the benchmark price-weighted average of U.S. Gulf of Mexico Urea Futures, U.S. Corn Band Potassium Fertilizer and Diammonium Phosphate (DAP)) was 923.08, breaking through the 2008 peak and hitting a record high.

According to Dow Jones Market data, the U.S. Gulf of Mexico Urea Futures Monthly Contract reported at $680/mt on October 7, up 168.2% from December 31, 2020, and up at least 200% from the same period in 2020.

As growers prepare to declare fall fertilizer purchases, the price of anhydrous ammonia in the U.S. corn belt has also soared. In addition, other fertilizer prices have also risen sharply, with diammonium hydrogen phosphate (DAP) futures trading at $682.50/ton, up 74.3% so far in 2021 and up 91.2% in the last 12 months.

Natural gas is an important raw material for the production of nitrogen fertilizer, and the sharp rise in natural gas prices has pushed up the price of nitrogen fertilizer. In addition, bad weather, import reduction and other factors combined to affect the supply of fertilizers in the United States, further pushing up fertilizer prices.

<h2>There is a lag between nitrogen fertilizer and natural gas prices</h2>

The European energy crisis hit, natural gas prices soared, and the fertilizer industry was seriously affected by it.

Natural gas is an important raw material for nitrogen fertilizer, which can be used for a variety of crops such as corn and wheat, and natural gas accounts for 75% to 90% of the operating costs of nitrogen production. As natural gas prices rise, fertilizer industry profits are compressed, resulting in a tight supply.

Sai Muel Taylor, executive director of Rabobank, said in an interview with Dow Jones that the increase in fertilizer prices is almost like a perfect storm composed of different reasons, and the prices of nitrogen, phosphorus, potassium and other nutrients may rise sharply.

Since the beginning of 2021, the price of NATURAL gas futures in the UK has risen by more than 340%, causing a number of fertilizer plants in the UK and other regions to stop production some time ago. U.S. Henry Hub natural gas futures closed tuesday at their highest level in nearly 13 years. On October 6, Putin said that Russia would fulfill its contract and possibly export more gas to stabilize the market, and gas prices fell back but remained at historic highs.

Taylor further said that there is a lag between nitrogen fertilizer prices and natural gas prices, which means that the rise in natural gas prices in the North American market will exacerbate the rise in nitrogen fertilizer prices.

<h2>Reduced supply is driving up prices</h2>

Weather factors reduced the supply of fertilizer, and shipping shipments were thrown into chaos by Hurricane Ada at the end of August, and synthetic ammonia plants on the U.S. Gulf Coast were forced to close.

Josh Linville, fertilizer director at Stone X, noted that the rise in fertilizer prices began to be linked to Storm Dreycho. Similar to an "inland hurricane," Drejo is extremely devastating. Within 14 hours of the hurricane's formation, it had a serious impact on the corn belt in Iowa and elsewhere.

In addition, analysts say U.S. sanctions against Belarus could limit U.S. imports of potash fertilizers into the country.

Rising fertilizer prices have placed a burden on farmers in the United States and around the world and heightened concerns about food inflation.

David Widmar, co-founder of agricultural research firm Agricultural Economic Insights, said a sharp rise in fertilizer prices would be a burden on farmers.

According to data tracked by the U.S. Department of Agriculture, corn fertilizer costs in Illinois are currently about $165 per acre, compared to about $140 last spring and about $85 to $90 a year ago.

Widmar responded to speculation that rising nitrogen fertilizer prices would lead farmers to reduce their corn plantings next spring and instead grow soybeans. Soybeans and other legumes form a symbiotic relationship with nitrogen-fixing bacteria, allowing them to meet most of their nitrogen needs by converting nitrogen from the atmosphere to ammonia.

Widmar said that while soybeans require less nitrogen than corn, they need roughly the same amount of phosphorus and potassium, and there is no short-term strategy to get people out of the phosphorus and potassium conundrum.

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