Feb 27, 2024

Concerns persist despite fertilizer prices stabilizing

After sharp spikes in fertilizer prices in 2022, farmers saw some relief last year as prices stabilized.

With the 2024 planting season nearing, analysts say there remain key influences that could shape the outlook of the fertilizer market.

Among the factors they’re watching are weather issues that could disrupt spring planting and transportation of fertilizers, as well as geopolitics that could affect fertilizer trade and production.

Lower prices last year increased demand for fertilizer, and usage is expected to continue growing in 2024, but only by 1% or 2%, said Veronica Nigh, senior economist at The Fertilizer Institute in Arlington, Virginia. That’s because prices farmers earn for their crops have fallen, making farm inputs such as fertilizer less affordable. Higher interest rates also hamper farmers’ ability to borrow.

“It doesn’t pencil out to apply fertilizer at the same rates that you might want,” Nigh said. “I think that’s going to continue to be a challenge for all growers in the U.S. and around the world, unfortunately.”

Farmers continue to make planting decisions, which can change depending on weather, markets and other factors, she noted. Even though 95% of the nation’s acres have been decided, the remaining 5% could have a big effect on total demand for fertilizer, particularly for nitrogen, Nigh said.

In a report released earlier this month, the USDA said what farmers spend on fertilizer this year is expected to rise by 4.3% to $31.7 billion compared to $30.4 billion in 2023. Fertilizer expenses in 2023 fell 17.5% from 2022 levels, driven by reductions in prices, the USDA reported. Even with the projected increase this year, fertilizer expenses are still lower than the $36.8 billion spent in 2022.

Mark Milam, a fertilizer market expert at Independent Commodity Intelligence Services, which tracks chemical and energy markets, said “a good amount of buying” already took place in the fall, when farmers typically take advantage of lower prices via prepaid or refill programs.

“Those who’ve done that,” he said, “are in a good position.”

Farmers who have not decided what crop to plant or who have not finished buying all their fertilizers because they thought prices might come down may feel more concerned, he said, as “what we’ve seen so far coming into this year is that prices are ticking up steadily.”

Case van Steyn, a Sacramento County dairy farmer who serves as board chairman of Stockton-based CALAMCO, a grower-owned fertilizer cooperative, said dairy farmers more typically hedge on inputs such as feed by locking in prices when they drop. But he has never done so on fertilizer, which he buys on the spot market and uses to grow feed crops for his cows.

“Most farmers don’t have a place to store fertilizer,” van Steyn said. “Some fertilizer is dangerous. There are lots of regulations on who can store it, where and how much. If it leaks or it gets spilled, now you’ve got another problem.”

Because fertilizer prices have fluctuated so much during the past two years, Nigh said farmers’ ability to pre-buy “is not as great as you might think.” Farmers don’t want to commit to a price that might change and then get stuck with a higher price, she added.

Milam said fertilizer producers and distributors have enough inventory in place “to run quite well through the first quarter.” With springtime being “the big demand period” for fertilizer in the U.S., Milam said prices for the various crop nutrients are already on the upswing.

Even though there hasn’t been a lot of planting activity in much of the nation, “the stage is being set for (fertilizer) prices to have a good bit of escalation in the next couple weeks,” he said. How the planting season unfolds in the coming weeks will be “the biggest determining factor in what happens” in fertilizer markets, with demand being the driver, Milam added.

If farmers in the Corn Belt decide to switch a significant number of acres to soybeans, that could reduce demand for nitrogen, Nigh said, as corn accounts for about 50% of nitrogen use in the U.S. Some of those planting decisions will depend on market prices and weather. Milam said fertilizer companies expect corn acreage to increase this year.

“The phrase I’ve been using is that right now everything feels positively cautious,” he said.

How quickly farmers start planting will affect how fast fertilizer prices climb during the peak demand period, Milam said. Rainy and snowy weather so far has delayed planting, he noted. By mid-April to the end of May, fertilizer prices typically begin to retreat until demand picks up again in the fall.

Markets for the big three — nitrogen, phosphate and potash — behave differently because of where and how they’re produced, Nigh said.

Nitrogen is produced globally. The big market driver is the cost of natural gas, which soared in the aftermath of Russia’s invasion of Ukraine in 2022. Nitrogen-producing countries, including the U.S., consume most of what they make, with just 10% of production globally traded. Higher natural gas prices have curbed nitrogen production, with countries turning to the global market for supply. That has disrupted the global balance of trade in nitrogen, she said.

Nigh said she thinks natural gas prices will continue to be “the biggest deal” affecting nitrogen production in 2024. With ongoing sanctions on Russia, political pressure remains the predominant impact on natural gas prices and therefore nitrogen prices in the U.S.

Big changes geopolitically could have major impacts on the phosphate market, Nigh said. There are only a few major exporters of phosphorus fertilizers: China, Morocco, Russia, Saudi Arabia and the U.S., with more than 50% of global production consumed in the country where phosphate is made.

“Some of the problems that were around in 2022 are still around in 2024,” she said, referring to the Russia-Ukraine conflict. But she noted even with the war continuing, the product “isn’t completely lost from the market,” as not everyone has shut off trade with Russia, which was able to get shipments out to other places.

Almost 75% of global potash production is exported, with 90% of exported potash coming from a handful of countries: Canada, Russia, Belarus, Israel and Germany. Half the world’s exported potash comes from Canada. Russia and its neighbor Belarus continue to pose a problem for supplies of the fertilizer, and now the war between Israel and Hamas poses additional potential disruptions to flows of potash exports from Israel, a key supplier.

Other risks to fertilizer supplies are closer to home, including impacts of low-water levels in the Mississippi River, a vital corridor for transporting imported and domestically produced fertilizers within the U.S., Nigh said. A lot of nitrogen, especially what’s produced in the South, goes up the Mississippi River, she said. Fewer barges and less fertilizer going through the river will push up prices. Milam noted that recent rains in the region seemed to have helped.

While some farmers have the option to use less fertilizer, change crops or fallow their land when fertilizer prices skyrocket, van Steyn said dairy farmers have less flexibility.

“Everything I grow goes to the cows,” he said. “The cows have to eat no matter what the price is.”

— Ching Lee, assistant editor of the California Farm Bureau’s Ag Alert. She may be contacted at [email protected].