by Jayci Bishop
What chemicals should I use? How will this affect my bottom line? Will the weather cooperate to make it all worth it? What is driving the high cost of production? Input prices and operation decisions are at the top of everyone’s mind as planting begins. But perhaps the most frustrating is fertilizer.
Prices have reached historically high levels for all major crop nutrients. Globally traded commodities, including nitrogen, phosphorus, potash and potassium are the most commonly used in Southwest crop production. Corey Rosenbusch, President and CEO of The Fertilizer Institute, gave insight into current market conditions and expectations for this year.
“It has been a confluence of issues and circumstances that have arrived at the marketplace we are currently at,” Rosenbusch said. “I think it all builds on a foundation that fertilizer is a globally traded commodity. If you think about crop production in the world, about 20% of all crops that are grown around the globe end up being exported. Fertilizer is more than 40%.”
In fact, 90% of all fertilizer consumption occurs outside the U.S. It is a resource-dependent input because supplies of phosphate and potash depend on where the elements exist in the world. In terms of agricultural commodity and fertilizer markets, what happens in foreign countries matters to the American farmer: COVID, natural disasters, global geopolitical events, trade disruptions and supply and demand all play a role. The COVID-19 pandemic both impacted the supply chain and labor availability, according to Rosenbusch.
“We specifically saw these major manufacturing facilities that have to go through preventative maintenance defer that maintenance. We call them turnarounds,” Rosenbusch explained. “They are usually down two to six weeks and bring in numerous external contractors on the site. Obviously, nobody wanted to do that during COVID, so in 2020 I think we saw zero turnarounds where we usually do six to seven plant turnarounds per year. That went all the way up to 13 in 2021. So, we had a significant amount of supply that came offline.”
Coupled with weather problems, the market impact and supply chain disruptions become even more apparent.
“We had a freeze event in Texas, Oklahoma and Louisiana, and Hurricane Ida that came up through Louisiana, and 60% of our nitrogen is produced in that Oklahoma, Texas, Louisiana corridor,” Rosenbusch said. “Not only did it shut down actual fertilizer manufacturing plants, but it also had a big impact on natural gas. That matters because natural gas is the primary feedstock for nitrogen fertilizers. About 85% of the cost on average of producing nitrogen fertilizers is natural gas. When the natural gas also got taken offline because of some of those weather-related events, it further impacted the situation.”
Natural disaster weather events are as unpredictable as geopolitical shocks. You may not realize it, but Chinese policy, a plane hijacked over Belarus and even war can affect the inputs you implement for your farming operation.
“It started with China. We aren’t exactly sure why they adopted the policy, but they decided to ban all exports of fertilizer,” Rosenbusch said. “The rumor was it was because of the Olympics. China uses coal instead of natural gas to produce fertilizer. When the Olympics rolled around, they wanted nice clean skies and didn’t want coal production clouding up and creating pollution for foreign visitors. China produces 40% of the world’s phosphates and about 30% of the world’s nitrogen. They are the number one fertilizer producer in the world, and when they block all exports, you have a significant impact on the world’s supply.”
Likewise, it impacted fertilizer when an airplane was hijacked over Belarus, resulting in sanctions. Rosenbusch explained that 20% of the world’s potash is in Belarus, and that event impacted world supply. He said we are only beginning to see the impact of the Russia-Ukraine War, as Russia is the second-largest fertilizer producer globally. Russia also exports 10% of processed phosphates, 23% of ammonia, 14% of urea and 21% of potash.
“We are just at the beginning impact of what is going on in Russia. Not only is there a natural gas issue because about 60% of Europe’s nitrogen production uses Russian gas, but then there is also the fact that Russia is the second-largest producer of fertilizer in the world. So you take their 20% of global potash supply and add it with Belarus’ 20%, and you have effectively removed almost half of the potash supply out of the market- place. They are also significant nitrogen, anhydrous ammonia and urea exporters. About 23% of the world’s urea exports come from Russia. Recently, Russia announced they were going to ban all exports of fertilizer products. We are at the beginning of watching this play out.”
Global events undoubtedly impact the supply and markets of fertilizer and other commodities, but this still begs the question – what about demand?
“When commodity prices are high and farmers are able to see there are some advantages of planting more and growing more, that in turn leads to more demand and more inputs, including fertilizer, to maximize those yields while the market is strong for their commodities – which then leads to higher prices,” Rosenbusch said. “Very traditional supply and demand.”
The supply chain can routinely face disruptions even before recent events. Prices notwithstanding, fertilizer supply will be there for farmers to use this season.
“Fertilizer moves by truck, rail and waterways,” Rosenbusch explained. “We see the slightest disruptions can really affect supply, and certain pockets of the country experience disruption. That’s not a new concept. It happens every single year. I have been told by most of our member companies that they feel for the spring there is supply to meet the demand that farmers want. With that said, there’s always going to be special circumstances and situations where that might not be the case for a very specific county or retail location.”
The price of fertilizer is the bigger problem.
“There is some complexity in whether the product will be there,” Rosenbusch said. “It’s not because there’s not availability. As a matter of fact, we saw imports of fertilizer grow last year so I mean there’s more supply coming into the country, but if farmers did not pre-buy or commit to their prices in the fall, they are going to have to look at the spot market and buy spot in the spring. We could be in a situation where the market conditions are so high that they will choose not to buy it.”
Rosenbusch recommends contacting your local retail agronomist and trying to plan ahead for your operation.
“Make sure you are in regular communication because they are staying up to speed on all these issues and they can help create a nutrient management plan that will ensure farmers can still achieve the yield and objectives they want,” Rosenbusch explained. “When possible, try to plan and commit as early as possible so your retailer can make sure they have the supply and product availability. With prices the way they are today, it also creates an entire complexity around finances. So, having cash and capital to invest in inventory at these higher price levels can often result in perhaps retailers not being able to procure the supply they need without the guarantee that it is going to be used by the farmer.”
The Nutrient Stewardship Program is another tool growers can utilize to make sure they use inputs efficiently and effectively.
“The whole purpose is for farmers to apply nutrients at the right source, rate, time and place,” Rosenbusch said. “We want farmers to soil sample, use variable rate application that guarantees that they are being as efficient as possible with the crop nutrients that they are applying. Now more than ever is when farmers should be deploying those stewardship practices to make sure that there is no waste in fertilizer purchases.”
What is The Fertilizer Institute?
TFI is the leading voice of the fertilizer industry, acting as an advocate for fair regulation and legislation, a consistent source for trusted information and data, a networking agent, and an outlet to publicize industry initiatives in safety and environmental stewardship. TFI’s mission is to represent, promote and protect the fertilizer industry through the following strategic initiatives:
- To foster a prosperous fertilizer industry through legislative
and regulatory activities at the federal, state and local levels
- To effectively address issues impacting TFI member companies
- To share knowledge about the fertilizer industry with members, government and the agriculture industry on issues related to fertilizer and the farm economy (The Fertilizer Institute)