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Why the cost of fertilizer is rising

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UNDERSTAND PRICE HIKE: If you’re like many U.S. farmers, you’ve seen fertilizer prices reach unprecedented levels, and you are asking yourself why. There are a lot of complicated answers, but MU Extension economist Ray Massey breaks it down to manageable pieces.
There is a simple explanation to a complicated question around fertilizer price increases.

It’s not just anhydrous ammonia prices on the rise. Phosphorus, potash and urea are experiencing the same unprecedented increases.

At the end of December, phosphorus (diammonium phosphate — DAP, and monoammonium phosphate —MAP), potassium (potash) and urea prices were near or above $800 per ton, with urea and monoammonium phosphate topping $900, according to the Illinois Production Cost Report by USDA’s Agricultural Market Research. Those prices are well off the $350 to $500 range for all three products during this same time in 2020, making it the highest level for the year.

While the overarching reason for rising fertilizer prices remains the high price of coal and natural gas, there are other issues affecting the markets.

Supply issues

During the University of Missouri Crop Management Conference in November, MU Extension economist Ray Massey explained the scenario behind rising prices for urea, potash, DAP and MAP, and it starts with China.

China is one of the U.S. major suppliers, and the country put a restriction on exports of phosphates. “They said ‘No, we're not going to export the phosphates this year,’” Massey said.

Because of a trade dispute, there are also tariffs on imports. If the U.S. wants phosphorus from the Middle East, he explained, there is going to be some tax on it, which ultimately raises the cost to farmers.

World inventories are tight, Massey said, because of the loss of Chinese exports of phosphorus and less European production, but that is not all. At the end of November, the U.S. saw a reduction in Russian products.

In the case of Russia, Massey said the country is dealing with similar issues found at U.S. ports. “It is, in part, due to diminished labor supply at ports where it is exported,” he said. “They had the stock, just like we have stockpiles off the West Coast on ships out in the sea, waiting to be unloaded. They have ships waiting to be loaded.”

So, the country pulled back on phosphorus because, as Massey puts it, the country has products deemed more important to export markets.

“It’s complicated,” Massey noted. “There's just a ton of things that are going on right now, with supply chains and with the way the processes are working, that's caused high fertilizer prices.”

Price pressure from demand

Meanwhile, world demand for phosphorus remains high.

India is one of the great users of DAP, but it is behind on stockpiles, Massey explained. “They need a lot of tonnage to help them catch up, and that comes in the first quarter of the years when a lot is being used. So, we see a huge world demand.”

While North American values remain high, Massey said the U.S. is below the price many places in the world are willing to pay to secure fertilizer products. “To get supply, we have to increase price at or above current replacement cost,” he said.

Combining the supply issues with demand pressures, he concluded, “We've got some problems with getting our inventories back up.”

So, what could bring down fertilizer prices? The adage, “High prices is the cure for high prices.”

What can bring prices down

Massey said that if prices get too high, farmers might shift away from corn to a different crop and not use as much fertilizer. He also noted that livestock producers will likely use less fertilizer on pasture.

Europe production could increase, Chinese exports could improve and Russian production could come back online. “Stranger things have happened,” Massey said. However, some added relief comes in the hope that the U.S. increases its own production in the South.

These are just “chances” that might help bring down fertilizer prices, but Massey is not optimistic of them becoming reality. “Right now, it looks like it's just high and it's gonna stay high,” he said.

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