It is no surprise to those farming or in ag retail that fertilizer prices have been going up. In the past year nitrogen prices have increased an average of 36%. Urea is up 31%, anhydrous ammonia up 39%, and 28% UAN is up 45%. When looking at the cost of an individual pound of nitrogen from these products the gap grows. In March of 2020, the cost was $0.30/pound of nitrogen for anhydrous ammonia and $0.42/pound of nitrogen for urea and 28% UAN. Fast forward to March 2021, we are at $0.42/pound of nitrogen with anhydrous ammonia, $0.55/pound of nitrogen with 28% urea, and $0.61/pound of nitrogen with 28% UAN.
So, are fertilizer manufactures trying to get their part of the grain rally? Maybe not. Fertilizer price increases started back last fall with MAP and DAP prices beginning to rise in September of 2020. Potash began its climb in December of 2020. Nitrogen hung back and started its big climb in February 2021, according to Progress Farmer DTN’s data. Looking back the rally in grain prices started gaining noticeable momentum in September/October of 2020. This seems to correlate rather closely with rally in grain prices on the surface. While this seems more than coincidental, fertilizer prices do not move that quickly, there is couple month lead time on fertilizer price changes.
Ag retailers began seeing tightness in supply and were forecasting price volatility of fertilizer in the middle of 2020. By late-summer 2020 retailers were talking to customers about prepaying fertilizer, especially nitrogen, to offset potential fertilizer price increases before the grain rally began.
The strong yields, government payments, and the grain commodity price rally led to strong farm incomes in the fall of 2020. This additional income then led to strong and swift increase fall fertilizer sales. Favorable fall weather for the first time in several years also allowed ample time for fertilizer to be spread and fall tillage to be completed. This complex led to a rapid realization of pent-up demand for fertilizer. It was a race to keep fertilizer in the warehouses to meet this demand. At the end of harvest many fertilizer warehouse inventories were low to exhausted. The fertilizer infrastructure was impacted by simple supply chain disruptions like other markets, and reduced product forecasts based on downward sales projections from the past few years, started to tighten supply and initiate the price increase in the summer of 2020. The good yield and commodity prices added the fuel to the fire. The unexpected demand for fertilizer created by farmer buying, combined with strong worldwide demand in a tight supply market, is driving the fertilizer prices higher.
So, what can be done at the farm gate to manage this? Yes, the grain markets are strong, and the extra income can cover this extra cost. But do you have grain to sell at these higher prices, or did you sell straight out of the field last fall or locked in prices too early in the rally? Would you like to hold on to some of the extra profit in 2021 to shore up your cash position? It is in times like these that solid crop fertility management can help achieve your financial goals for you faming business. Your ALGL regional agronomist is ready to help you achieve your business goals, and your customers business goals, by getting as much as you can out of every dollar spent on crop nutrition.