We regularly write about fertilizer prices because that particular input accounts for a large share of variable production expenses. The recent surge in fertilizer prices has been widely discussed but this week’s post breaks down the latest data to provide five insights.
1) From Lows to Highs
This past year we wrote that fertilizer prices were approaching decade lows. Twelve months later, fertilizer prices now approach decade highs. In early October anhydrous ammonia was at an average of $856 per ton, slightly off the 2013 highs of $892 per ton. But diammonium phosphate – DAP – and potash are considerably higher than previous highs. Current DAP prices are $780 per ton, compared to the previous high of $710 in late 2011. Potash is currently at $725 per ton, at well more than the previous high of $645 in 2012.
Nitrogen receives the majority of attention but current phosphorus and potash prices are arguably a more-significant challenge than nitrogen. All prices have increased but it’s phosphorus and potassium that are at decade-high levels.
2) Timing Matters
Figure 2 shows the changes in fertilizer prices since spring 2021 and spring 2020. Again that shows that phosphorus and potassium prices have increased the most in the past 18 months. The degree of sticker shock depends on which time frame we consider. Anhydrous ammonia prices are 14 percent more than spring 2021 and 59 percent more than spring 2020 prices. They’ve almost doubled since September 2020. This fall many producers are pricing fertilizer at levels almost double the decade-lows they locked in a year ago.
3) Record Expense per Acre
Fertilizer prices don’t change uniformly so it’s important to consider the acre-level implications. Figure 3 shows the estimated cost of applying a corn-fertilizer blend of 180-70-70. Currently the fertilizer expense totals $171 per acre, an increase of $72 per acre from spring-2020 levels. Furthermore the current expense is more than the spring average prices of $160 per acre observed during 2011-2013. This past fall we noted the expense hit a low of $92 per acre.
Of course an acre of corn in 2022 has a greater yield potential than the same acre in 2011-2013, which means the cost per bushel in 2022 is less. While not shown, fertilizer expense was a high of $1 per bushel budgeted yield in 2011 and would be $0.95 per bushel at current prices. Fertilizer was a low of $0.59 per bushel in 2017.
4) Relative Price Matters
All fertilizer is more costly but producers should still consider the prices of alternatives. Figure 4 shows the price relationship between anhydrous ammonia and urea. On average a unit of nitrogen from urea costs 1.25 times the price of a unit from anhydrous ammonia. Relative urea prices have been at more than that long-run average since 2019 but have recently jumped to 1.55, the most since 2012.
While not shown, liquid-28-percent prices are also historically high relative to anhydrous ammonia. That said, liquid 28 percent might be more appealing than urea for producers considering those alternatives.
In most cases the decision to switch nitrogen inputs is complex; it involves equipment and timing considerations. That said, the combination of increased fertilizer prices and historical differences between alternatives could provide an opportunity for some producers. Relative price could become even more important if supply-chain and availability concerns continue.
5) Increased Fertilizer and Corn Prices
There are several ways to consider the current fertilizer-price situation – cost per acre, cost per bushel or even fertilizer expense as a share of budgeted revenue. Each of those is helpful to consider but they collectively underscore how difficult it can be to summarize the situation in a single chart or soundbite.
Figure 5 shows fertilizer expense in comparison with budgeted revenue. Current data suggest fertilizer expense will account for 18 percent of projected revenue in 2022, an increase from recent years. Notice that measure of fertilizer’s financial burden was at a high of 20 percent in 2015, which was not when fertilizer expense per-acre basis peaked.
Again, there are many ways to attempt to summarize the current situation. But it’s important to keep in mind that the financial hurdle – or pain – of fertilizer depends on fertilizer prices, commodity prices and the overall crop-budget situation. In other words, be careful jumping to a conclusion about profitability, crop budgets or acreage allocations in 2022 based solely on fertilizer prices. Reduced fertilizer prices by themselves don’t necessarily mean crop budgets are profitable or that corn is more attractive than soybeans. Conversely, increased fertilizer prices don’t necessarily mean crop budgets are unprofitable or corn is less attractive.
Wrapping it Up
The wild swing in fertilizer prices during the past 12 months will be remembered for many years to come. Looking ahead, uncertainty about where prices go in the next six months, combined with concerns about availability, can create significant angst and stress. In addition to the insights and charts, a helpful starting point for producers is updating and reviewing their specific budgets – including both costs and revenue projections.
In conclusion, singularly focusing on fertilizer costs can distort our thinking. For 2022, increased fertilizer prices will be offset in part by commodity prices considerably better than just a few years ago.