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by Gary Schnitkey, Nick Paulson, Krista Swanson, Joana Colussi, and Jim Baltz, Department of Agricultural and Consumer Economics, University of Illinois
Carl Zulauf, Department of Agricultural, Environmental and Development Economics, Ohio State University

Nitrogen fertilizer prices are high and likely will go higher due to repercussions from the Ukraine-Russia conflict.

Herein, we trace the evolution of nitrogen price increases, making the case that increases up until recent months resulted from responses to the Covid pandemic, general price inflation, and policies in Europe to move away from fossil fuels.

The Ukraine-Russia conflict will intensify nitrogen price and supply concerns. North American fertilizer companies have faced scrutiny as a culprit in rising nitrogen fertilizer prices. While it is true that North American fertilizer companies likely will have a good income year in 2022, a range of global market factors are contributing to higher fertilizer prices.

Fertilizer prices have been rising since 2020, reaching extremely high levels in the fall of 2021 (see Figure 1). According to the Agricultural Marketing Service, farmer-paid prices for anhydrous ammonia were $487 per ton in 2020, increasing to $746 per ton by July 2021 (see farmdoc daily, August 3, 2021). The price continued to grow, reaching over $1,000 per ton in October 2021. Illinois ammonia prices continued to increase to $1,498 on February 10 and $1,503 on February 24, the day Russia invaded Ukraine. On March 23, the ammonia price was $1,516 per ton, increasing little from the reference point before the invasion.

Through October 2021, ammonia price increases were explained reasonably well by increases in corn and natural gas prices, with corn prices having more impact than natural gas prices (see farmdoc daily, December 14, 2021). Corn represents the crop with the single highest nitrogen use in North America (soybeans generally do not need additional nitrogen fertilizers, while wheat and other grasses would use nitrogen).

As a result, increases in corn prices may signal increased demand for nitrogen fertilizers that pushes fertilizer prices higher. Natural gas is the major variable input in producing nitrogen fertilizers in North America and Europe. Other research has found that the relationship between nitrogen fertilizer and corn prices strengthens in the biofuels era (Bachman and Riche; Bekkeram, Gumbley, and Brester).

Up through October, farmer-paid prices can be attributed to the typical factors that cause corn and natural gas price rises. There are high correlations between corn, natural gas, ammonia prices, and most commodities, including crude oil. Up through October 2021, commodity price increases were responses to disruptions caused by the Covid pandemic and resulting price inflation. Large stimulus payments made by the Federal government also caused inflationary pressures. Anemic responses by the Federal Reserve Bank (FED) to combating inflation reinforced price inflation.

In October 2021, anhydrous ammonia far exceeded prices suggested by the traditional relationship between corn and natural gas prices, often by $300 and $400 per ton. Other factors are impacting those prices. U.S. ammonia production was reduced because of the planned maintenance of U.S. production plants and Hurricane Ida extending plant stoppages.

During the summer, CF Industries, a North American nitrogen producer announced an antidumping petition for ammonia nitrate solution (UAN) against Russia and Trinidad and Tobago (see Business Wire, June 30, 2021), potentially decreasing fertilizer supply and increasing price. Natural gas and ammonia prices outside the U.S. also played a role in the divergence.

To read the entire report click here.

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