The reality of high fertilizer prices, in many cases over $ 1,000 per tonne compared to comparable averages from last year, is inescapable for farmers planning for 2022.
Whether it would be convenient to blame the problems related to COVID-19 or changes in national leadership – and these could certainly be factors – the situation is a tangle of international changes, natural events and unique complications.
“The world is using more and producing less over the past two years,” said Mark Nelson, director of commodities for the Kansas Farm Bureau. “We’ve seen almost on average a 2% increase in acreage planted globally, not just in the United States, but we’re seeing more acres planted internationally. That means more fertilizer data, but it tightens the supply. “
At the Kansas Farm Bureau’s annual conference, Troy Walker, director of fertilizer purchasing for the Mid Kansas Cooperative, was on hand to dispel myths and answer questions about the supply issues he has faced since 2020.
“So I guess the long and short is that DU (urea ammonium) has a real, fundamental supply shortage in particular,” Walker said. “There isn’t enough UA in the market and you’ve probably heard it from your suppliers. “
While producers have already felt the impacts of fertilizer shortages in the form of higher prices, the impacts of current supply and demand conditions have the potential to be long lasting and far reaching.
“How do you get out of this and what does it look like in the future?” Walker said. “How did we get here?”
The first and potentially the most important factor driving up prices, especially phosphate prices, has occurred in a foreign and domestic dispute.
“It started with Mosaic launching a countervailing duty lawsuit against Russia,” Walker said. “Basically saying, ‘Hey, you unfairly subsidized the value of phosphates, bringing them into our country and you can’t do that anymore. We can supply the domestic market ourselves.
Almost eight months after Mosaic – the largest phosphate maker in the United States – launched the lawsuit, investigations found loopholes in the phosphate subsidy practices at Moroccan and Russian companies. Tariffs ranging from 9% to 47% on companies involved in the lawsuit quickly halted exports from those countries.
“When you block a manufacturer, you get it from another place. Right? “Says Walker.” We probably got it from Australia. It’s just a lot more expensive to get it from Australia than it is to get it from Russia. So now your prices are going to stay high.
The lawsuit was a big win for Mosaic, which controls about 80% of the US phosphate market share, and wrote the manual explaining how other US manufacturers might find fault with international players in the fertilizer markets.
As a result, growers applied less phosphate in 2021, choosing to rely on soil testing to apply only absolutely necessary inputs, which could increase demand in already tight markets for 2022.
Availability of natural gas
Historic cold temperatures, frost and snowfall last spring continue to have lasting effects on agriculture. In this case, in the form of shortages of natural gas.
“We took all that natural gas and shipped it to Texas where they could charge a lot for it,” Walker said. “Well, when they did that, they also briefly shut down our production facility. “
Natural gas is a key ingredient in DU production, further complicating the fertilizer supply issues.
“Now we are starting to see the price of AU in particular starting to rise again, as we have estimated between 3,000 and 4,000 tonnes of AU production during this period in late February, early March,” Walker said. . “And that’s when you saw the prices go up.”
Initially, Walker said the combination of international tariffs and domestic natural gas supply was not entirely of concern, as fertilizer prices reset with warmer weather. This was not the case in 2021.
“Almost like clockwork, the price will go down because of the drop in demand,” Walker said. “In the summer there is plenty of time for manufacturers to restock, et cetera. We haven’t seen that. Demand remained high and was supported by good commodity prices.
International litigation Part 2
Where Mosaic covers the majority of the phosphate market share in the United States, CF Industries controls a similar amount of the nitrogen manufacturing space, and has subsequently followed the precedent with its own international action.
“When Mosaic won the lawsuit, the phosphate countervailing duty lawsuit, the manual was written for CF to bring the exact same lawsuit against Russia, claiming an unfair advantage,” Walker said. “When it was announced in late June or early July, it slowed or stopped imports from Russia.”
In a strangely similar turn of events, CF Industries raised its prices and smaller market players had no choice but to follow suit.
“CF industries is certainly the largest producer of nitrogen in the United States. So they’ll set the price and after you set the price everyone will follow, ”Walker said. “You can’t be a small player like Coffeyville Resources, or even Koch is a little bigger, but compared to what CF is doing, they can’t have a lot of impact. “
While imports from Russia and Morocco are relatively small on tariffed products, Walker said even a small amount can have a profound impact on supply.
“You get enough from Russia to make a difference,” Walker said. “These are single-digit percentages, but if you always look at the single-digit percentage when you’re talking about millions of tonnes, that’s a lot.”
In late August and early September, Hurricane Ida wreaked havoc in the southern United States, a key fertilizer-producing area. While factories in Louisiana and surrounding states are built with hurricane force winds and high water in mind, plant operations are still at a standstill in the aftermath of the hurricane.
“What’s wrong is if you can’t run the plant for two to three weeks, because you don’t have electricity,” Walker said. “So whether it is able to function or not, you still lost 200,000, 300,000, 400,000 tonnes of production CPU.”
Needless to say, supplies to the United States have been strained even further.
In addition to power outages, maintenance of fertilizer factories fell behind during COVID-19, when shutdowns were canceled due to employee availability or a desire to meet quotas.
“So now we’re late compared to February and we’re trying to make up for it,” Walker said. “We’re behind Ida again. And in the meantime, we’ve failed to do some of our normal factory rotations because during COVID, we failed to do them. “
As a result, several factories faced sporadic shutdowns for what would have been routine maintenance, Walker said.
China’s withdrawal from the world market
While the United States buys little fertilizer directly from China, the country is one of the largest suppliers of fertilizer to the world, especially to neighboring India, which is one of the largest consumers of fertilizer. fertilizer to the world.
Under review of air quality and human rights complaints leading up to the 2022 Beijing Winter Olympics, China halted production at nearly all of the production facilities of fertilizer inputs.
What if the US market goes back to the very beginning and tackles the original instigator of the market problems by removing or reducing tariffs against Russia and Morocco? Walker said. European demand for UA is unusually strong, and Russian companies are unlikely, even without tariffs, to resume supplying the United States right away.
“Although the countervailing duty rates on the AU don’t seem so high, Russia doesn’t need a comeback at all,” Walker said. “There is such a demand in Europe for this UAM that it won’t be coming back here again and we will run out of UA again next year. “
Like all problems without a single determining factor, there are also no easy solutions to high fertilizer prices. The laws of supply and demand dictate that ultimately the market should recover. How quickly this could happen is a puzzle.
“My overall message would be that anyone can predict and think of a black swan event,” Walker said. “A black swan event is something really outside of the mainstream market and we mentioned six of them. So, it wasn’t that we had a black swan event that caused this. It was more like a hurricane on their part.
Rapp writes for Farm Talk, of Parsons, Kan.