Fertilizer prices won't find tariff relief

Getty Images 12-03-21 fertilizer spreading.jpg
NCGA president says another year of fertilizer shortages and tariffs will be “devastating.”

“Farmers shouldn’t have to pay for disputes between American fertilizer companies and foreign producers,” says National Corn Growers Association President Chris Edgington. But that’s what he says will continue if companies don’t drop their petitions following actions by the Department of Commerce and International Trade Commission upholding tariffs on imports of phosphate and urea ammonium nitrate solutions.

The U.S. Department of Commerce recommended in February 2021 that the ITC implement tariffs over 19% on imported fertilizers from Morocco after the Mosaic Company, which manufactures fertilizers used in the U.S. and abroad, filed a petition with the department seeking the levies. The ITC voted in March to impose the tariffs while adding similar levies on Russian imports.

The Commerce Department also announced November 30 that it had made a preliminary determination in favor of a complaint filed by CF Industries that urea ammonium nitrate imports from Russia and Trinidad and Tobago are also unfairly subsidized by their governments. As a result, the Department of Commerce is recommending countervailing duties on fertilizers from these countries. 

As a result of the latest determinations, Commerce will impose preliminary cash deposit requirements on imports of UAN from Russia and Trinidad, equivalent to the rates of unfair subsidization. Commerce is conducting concurrent antidumping investigations of UAN from Russia and Trinidad. Preliminary determinations in the AD investigations are expected in late January, which could lead to the imposition of additional preliminary cash deposit requirements.

The financial impact of the tariffs is beginning to dim planting forecasts for 2022, according to economists. Fertilizer costs between 2021 and 2022 are projected to lower net incomes by 34% in Illinois, according to new projections from economists at the University of Illinois. Farmers say the forecast in Illinois is illustrative of what’s happening across the country.

“The tariffs have created a financial hardship for farmers.” Edgington says. “Another year of shortages and tariffs will be devastating.”

The amicus brief filed by NCGA and other farm groups including the American Soybean Association, National Cotton Council, National Sorghum Producers and Agricultural Retailers Association in an appeal of the countervailing duties before the U.S. Court of International Trade details a decision by Mosaic in 2017 to shutter two facilities, which they say caused a shortage of fertilizers for U.S. farmers in the 2018 planting season. As a result, farmers sought supplies from companies outside the U.S.

The brief quotes the Mosaic CEO who says, “When we shut down – sorry, idled Plant City, that opened a hole for some imports to increase . . . So we gave up 1 million tonnes {i.e., 1.1 million short tons (ST)} {sic} of market here in the U.S. intentionally.”  The brief adds, “Spoken by Mosaic’s CEO in 2019, these are not the words of a manager coping with import injury, but those of an entrepreneur taking deliberate risks in pursuit of a business objective.”

In an interview with Ben Pratt, Mosaic senior vice president of government and public affairs, he defended Mosaic’s requests for tariffs as necessary to level the playing field. Pratt notes in 2019 when the price of phosphate was significantly lower in the U.S. than in other markets around the world, Mosaic was actually losing money on phosphate fertilizers. He explains Mosaic makes about 10 million tons of phosphate per year.

Pratt says Mosaic wasn’t looking for special favors when it petitioned for the countervailing duties. “We needed a level playing field to ensure long-term viability of a U.S. critical source of fertilizer.”

He says a misnomer in the market right now is that those duties are what’s driving phosphate prices higher. “That’s just not true,” he says.

He explains that there are actually more tons of phosphate available today than before it shuttered its facilities. After the duties were imposed on Russia and Morocco, other world phosphate producers saw the United States as a promising market and imports into the U.S. from other suppliers have increased.  

Pratt says if countervailing duties were driving prices, you would see higher prices in the United States compared to other world markets. “And that’s not the case either. The price of phosphates certainly is high, and it has risen sharply, and we empathize with farmers about that. But farmers in Brazil are paying the same prices as farmers in the United States and there are no duties on Moroccans or Russians there.”

Pratt notes that while the countervailing duties changed global trade flows, it didn’t change supply and demand.

“One of the reasons that phosphate prices are so high right now is because the prices of materials that we use to make them are all high,” Pratt adds. Ammonia, for instance costs $200 per ton of fertilizer as a raw material.

Pratt also defended claims in the brief that Mosaic controls 80% of the domestic market. Instead, he says Mosaic’s market share hovers around 50%, and it hasn’t changed markedly since the countervailing duties were imposed.

Withdrawing the petition

The duties themselves are in place for five years, and the timeline for the phosphate ones started in March 2021. The CV can be revisited if the company or country believe the conditions have changed.

Edgington notes while there are a host of issues that contributed to the current fertilizer market problems, including restrictive trade policies from other countries and the fallout from Hurricane Ida, the Mosaic tariffs have only made a bad situation worse.

“Given the crippling effect these tariffs have had on farmers, it’s deeply disappointing to see that the U.S. Commerce Department and CF Industries would continue to press for more tariffs. Mosaic and CF Industries can easily resolve these issues and provide immediate relief to farmers by dropping their petitions,” Edgington says.

Fertilizer supply typically takes several months to work its way through the supply chain, the brief from the farmer groups note. In addition, unexpected weather patterns, such as abnormally high precipitation, can negatively impact demand for fertilizers, causing a mismatch between projected demand and actual purchases.  

“…farmers can only apply fertilizers during a finite window of the planting season,” the brief explains. If supply is not available during that window, fertilizer application must be delayed until some future window of opportunity. This places a premium on reliability of supply, leading suppliers to diversify sourcing.”  

“Executives at Mosaic can remove this financial burden by withdrawing the petition,” adds Edgington. “We invite them to do just that.”

Under U.S. law, both Commerce and the ITC must make final affirmative determinations in order for Commerce to issue an AD/CVD order, which would remain in place for at least five years. Commerce and the ITC are expected to make final determinations in the summer of 2022.

Pratt says Mosaic expects to see fertilizer prices stay elevated well into, if not all the way through, 2022. “We don’t expect them to continue to rise, certainly not as rapidly as they have been, but there are a couple of wild card dynamics in that supply and demand picture.”

The biggest wild card is the Chinese government’s decision to impose a temporary ban on exports of phosphates from China to ensure Chinese domestic farmers have adequate supplies. This is putting a crimp on global trade flows. “Supply and demand is very tight, and will remain very tight,” Pratt says.

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