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With much of the supply chain chaos from the past few years smoothed out, fertilizer producers are keeping close tabs on supplies as global applications increase.

Jacqueline Holland, Grain market analyst

March 14, 2024

8 Min Read
Applying anhydrous ammonia
Charles Brutlag/Getty Images/iStockPhoto

When the Illinois USDA released their bi-weekly retail Production Cost report last Thursday, the slight uptick in anhydrous ammonia, urea, DAP, MAP, and potash prices suggested that the market has moved past winter lows and is already anticipating seasonal demand shifts ahead of peak application season.

To be sure, the aggregate price bundle of nitrogen, phosphorus, and potassium (NPK) fertilizers along with diesel fuel is currently 19% lower than the same time a year ago – a good sign for inflation-weary farmers. On a per acre basis, nitrogen expenses have experienced the biggest decline in the past year, shedding 20% - 31% ($20-$40/acre) of their value during that time.

Illinois Bi-weekly Retail Production Costs 2020-23

During that period, December 2024 corn futures prices fell 16% lower. Assuming an average yield of 200 bushels per acre, that would result in a per acre revenue loss of $178/acre, leaving 2024 per acre corn revenues at $938/acre.

The lower commodity prices have largely offset accompanying decreases in lower fertilizer costs. This means that margins will remain tight during the 2024 growing season – likely the tightest farmers have endured since the 2019/20 marketing year.

With tighter profit margins penciling out for 2024, farmers will need to anticipate fertilizer producers’ next moves to ensure their own profitability. Supply chain considerations will also need to be made and crop price economics will inevitably play a role in farmers’ 2024 acreage decisions.

Related:2024 farm income to face biggest annual decline since 2006

Fertilizer producers’ plans for #Plant24

High fertilizer prices across the globe have limited farmer applications since 2021. Nutrien expects to see that trend begin to reverse during the 2023/24 marketing year, which should encourage higher crop yields. Global wheat and rice stocks remain tight relative to historical patterns, so farmers should see some price incentive to plant those crops – and apply necessary fertilizer treatments – this year.

Mosaic noted that aggregate grain and oilseed consumption continues to outpace production, which should sustain farmer demand for crop nutrients throughout the upcoming growing season. Corn and soybean crops account for nearly a third of global potash and phosphate consumption, with Mosaic observing that fewer non-nitrogen inputs are required to maintain yields.

Low global stocks-to-use ratio

This upcoming spring, Nutrien expects potash consumption to “recover towards trend levels,” continuing a late-2023 buying rally by farmers. Mosaic echoed these sentiments in their annual earnings report in mid-February 2024. Both companies acknowledged that fertilizer prices fell faster last year, which triggered more farmer sales in the U.S. at the end of 2023.

Related:Are farmers truly undersold on 2023 corn?

Global nitrogen markets are expected to remain constrained by fluctuations in European production, Chinese urea export restrictions, and small Russian ammonia pipeline exports. The U.S. exported more nitrogen fertilizers in the second half of 2023, which is also keeping domestic stocks tight. Nutrien expects tight nitrogen inventories ahead of spring planting, which could constrain growers looking to make some last-minute applications.

It might not matter – there was a lot of anhydrous that was applied late last year. My brother, who is an agronomist in Northern Illinois, observed to me in late February that his company had never ran so many anhydrous bars during that month as the company tried to reconcile prepaid farmer purchases.

CF Industries echoed Mosaic and Nutrien’s expectations that fertilizer volumes consumed by farmers will continue to grow over the next year – especially in Brazil – but that limited urea exports by China will keep the market tight.

Import demand expected to remain resilient in 2024

Phosphate inventories remain tight in North America. Nutrien does not expect that China’s phosphate volumes will significantly return to the export market in 2024 and that India will be a competitive buyer of phosphate products going into their planting season. Similarly, Mosaic expects phosphate shipments will continue to climb in 2024.

After battling the massive pendulum swings of the 2020 pandemic, global acreage expansion, Russian invasion of Ukraine, and the ensuing supply chain madness following these events, fertilizer producers are reigning in what they view as “excess” production, tightening up inventories, and shortening the time product is spending in the supply chain. Essentially, the supply chain issues of the past few years have finally been smoothed out.

This reversion back to “just-in-time” inventory management will keep a floor under fertilizer prices through spring planting season, so the time to capitalize on deals may be in the past for farmers. However, the summer production season could result in lower prices for growers who may be looking to lock in prices for 2025 inputs next fall.

“There will likely be more price elasticity during the summer 2024 reset period,” Josh Linville of StoneX forecasted. He notes that fertilizer producers are not likely to make significant changes to production schedules beyond immediate restocking needs during that period.

Logistics and supply chain considerations

Tighter fertilizer inventories mean that retailers will likely be running truckload to truckload this spring, so Linville advises talking with your ag retailer early and often about 2024 planting and application plans.

Linville also expects that retailers will be “more conservative” this summer, even as many fertilizer producers are expected to start early on summer reset production ahead of fall application season.

“Ag retailers took a bath on higher inventories and falling prices in 2023,” Linville warns. “They aren’t going to repeat that this year.”

Mississippi River water levels are in good condition for fertilizer shipments up from the Gulf, though low snowpack and dry conditions in the Upper Midwest continue to loom large in everyone’s mind. Since little fertilizer products traverse the Panama Canal, Linville is also not worrying too much about shipping constraints in the channel that handles around 6% of all global trade.

The Red Sea shipping vessel attacks could impact urea prices, which would trickle down into other nitrogen fertilizer derivatives, like anhydrous ammonia and UAN. But so far, the ongoing conflict has not had major price impacts on the domestic fertilizer market in the U.S. “Some Saudi Arabian phosphate could be impacted, but not much,” Linville reasons.

What farmers should know

From a price perspective, farmers can expect flat phosphate and potash prices this winter to undergo a seasonal uptick later this spring as peak application activities get underway. An increase in global demand will keep phosphate and potash prices from falling too much before planting season starts but increases in production over the past couple years will keep those price gains limited.

Nutrien has increased production volumes of UAN, which bodes favorably for U.S. growers looking to apply nitrogen fertilizers this spring. But globally, nitrogen supplies remain constrained, which might limit deal opportunities for farmers still looking to make nitrogen purchases.

Mosaic’s CEO Bruce Bodine said in the company’s mid-February 2024 earnings call that the company doesn’t expect farmers to continue foregoing phosphate and potash applications amid high prices. Potash prices are showing some signs of increasing amid ongoing conflicts in the Red Sea, but not yet to a level that would reduce demand.

Nutrien’s CEO Ken Seitz echoed concerns about the Red Sea Conflict constraining global potash flows but noted that if Russia and Belarus can find alternative shipping routes, those volumes could keep the global potash balance sheet – and prices – in check.

All three of the major fertilizer companies cited lower 2023 earnings after breaking record highs in 2022. But with many of the supply chain kinks from the pandemic and Ukrainian conflict worked out, each company is focused on lower prices ushering in stalled farmer demand through the remainder of 2024. Excess inventories have largely been cleaned out, so producers are likely going to be closely monitoring production levels to ensure they don’t significantly outpace farmer demand in the coming months.

Linville expects low nitrogen supplies will stay tight through this spring, though if farmers already applied anhydrous ammonia last fall, this may be of little concern. The January 2024 Farm Futures growers survey found that 37% of respondents were using cash from 2023 profits to pay for 2024 inputs. Over 23% of respondents reported locking in 2024 pricing for inputs last fall, which was down slightly from a year prior.

“Corn prices are still playing a factor,” Linville cautions, noting the recent drop in corn prices helped pressure potash prices lower. Usually, fertilizer prices stubbornly stay higher after corn prices drop, but the fall in potash values tells Linville there is “no stickiness this time.”

Overall, high prices are likely going to linger in the fertilizer market this year, even as revenues from crop sales are poised to shrink.

Farmers’ 2024 planting expectations

Linville notes that last fall saw 2.3 million metric tonnes of anhydrous ammonia applied in the U.S., which was about 300,000 metric tonnes higher than pre-harvest forecasts. That difference may not seem significant, “but it was a huge swing that kept anhydrous ammonia supplies tight headed into the spring season,” Linville explains, observing that last fall’s applications were the third largest for the time of year since 2000.

More anhydrous sales paired with lower nitrogen prices favors corn production, even though the per acre profit margins for corn are currently projected at a loss, given recent Dec24 corn futures contract prices.

Through early March, there were no definitive signs of early planting progress. But over the past couple days, soil temperatures across the Corn Belt have been breaking past the 50-degree-Farenhiet benchmark critical to seed germination.

With La Niña weather conditions expected to develop as summer begins in the Northern Hemisphere, farmers could face drought risks at pollination if they plant too soon. La Niña summers often lead to dry growing conditions in the Heartland, especially the U.S. Plains.

Through March 5, 32% of U.S. corn ground and 31% of soybean area was in drought. With farmers balancing tighter profit margins this year, they face higher downside yield risks if weather does not cooperate. And in a year where inputs still require a significant investment before that crop return is realized, will farmers risk all that capital just to plant a week or two early?

Time will tell!

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About the Author(s)

Jacqueline Holland

Grain market analyst, Farm Futures

Holland grew up on a dairy farm in northern Illinois. She obtained a B.S. in Finance and Agribusiness from Illinois State University where she was the president of the ISU chapter of the National Agri-Marketing Association. Holland earned an M.S. in Agricultural Economics from Purdue University where her research focused on large farm decision-making and precision crop technology. Before joining Farm Progress, Holland worked in the food manufacturing industry as a financial and operational analyst at Pilgrim's and Leprino Foods. She brings strong knowledge of large agribusiness management to weekly, monthly and daily market reports. In her free time, Holland enjoys competing in triathlons as well as hiking and cooking with her husband, Chris. She resides in the Fort Collins, CO area.

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