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Fertilizer Prices Soar Near 2008 Highs On Supply Shocks, Concerns Sprout Over Sourcing Enough For 2022 U.S. Corn Acres

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Prices Near 2008 Highs

The phosphate ban is just the latest in a series of events that are leading to a supply shock for fertilizer ahead of the 2022 growing season. And that supply shock is creating a price spike that can only compare to 2008, with concerns the most recent strains could cause prices to surpass the record-high fertilizer prices farmers saw in 2008.

“In 2008, we had a little bit more of a lead up to it,” says Linville. “And we started from a slightly higher price. We started the 2008 saga closer to probably $350 a (metric) tonne NOLA urea, and we spiked out about $825. So, we are not at the historic highs yet, even though it feels like it. We're not quite there. The problem with this one, though, is back in 2008, it was all demand driven. We never had problems finding supply, it was just, 'What price are you willing to pay to get your hands on it?' This one is much more supply driven.”

Supply Saga Stacks Up

The supply-driven factors continue to add up. In addition to a spike in shipping costs, energy prices are soaring this week, with natural gas prices spiking to more than $6 per metric million British thermal unit (mmbtu), nearing the 2014 peak. It’s a factor that could drive up costs for nitrogen even further this year as the supply issues seem to be appearing from nearly every angle, with a laundry list of issues impacting fertilizer availability and prices.

“Hurricane Ida destroyed production down in the Delta,” says Linville. “We have inland production points that are having problems because of repairs that were made during the COVID situation. We've got China, the world's largest urea producer, who has cut exports because they're keeping it at home for their producers. You've got European production having issues because of natural gas price. There is serious, serious concern. We've been crying wolf for a lot of years that 'Hey, there may be a season we can't find product.' But we always find a way. This one has a lot of the markings that say this could be the nightmare.”

Gary Vogen with Yara told The Scoop that on a global scale, fertilizer producers have ramped down volumes to reduce their exposure to the high prices of natural gas for nitrogen production.

“In a normal situation, if you had a price spike in Europe, the rest of the world would compensate. But the supply chains are all limited now,” he says. “As a result of strong demand last year, a shift over the past 10 years to put more domestic production closer to the user, and potential tariff limitations on certain products, the long chain—the pipeline—is quite empty.”

Vogen says the first quarter of 2022 shows the first window of opportunity for resolving the high natural gas prices, but fertilizer prices will also continue to be driven by other global influences.

Finding Fertilizer for 91 Million Acres of Corn

The supply shocks are turning into a critical situation. As plants continue to throttle back production around the globe, there are fears there won’t even be enough fertilizer to supply the 91 million acres of corn currently penciled in for the 2022 season.

“It will be available, but at a price,” Linville says after a long pause when answering whether there will be enough fertilizer supplies in the U.S. “The scary proposition is, 'What is the price it’s going to take to find enough supplies?' That's where we start getting these areas where we might challenge 2008 price highs. We might need to start outbidding not only the supplies that are here in the U.S. North American market, we may have to start outbidding the rest of the world for that same nitrogen unit to get what we need to raise our 91 million acres of corn. And that's the scary thing.”

As North America battles to find the supplies to fuel not just U.S. corn acres, but Canada as well, the bidding war continues among those trying to source enough supplies as retailers and ag companies see a global-wide chess match heat up.

“Retailers can’t always guarantee that product is available if a customer knocks on the door to buy it today,” Vogen says. “Even with significant planning, unexpected influences can disrupt and delay the supply chain process. Historically, the industry has made it easy to buy one or two times a year, but that may be not the best case going forward.”

Vogen says Yara is encouraging ag retailers to share the facts with farmers to help them understand what's causing the price increases, as ag retailers are also battling the constant questions of not just supplies, but prices with no clear timeline on how long they will last.

“We’re adjusting on the fly at all times,” Vogen says. “We will continue to evolve; there is no quick answer to this."

Timeline of Fertilizer Supply and Price Woes

Linville says he doesn’t see a lot of relief in nitrogen prices between now and next spring, and phosphate and potash will be heavily dependent on what farmers decide to apply to their ground this fall. And as overall supplies continue to see pressure, the only thing that would pressure prices at this point would be widespread demand destruction.

“A lot of people are saying at these kind of input prices, I'm going to cut my corn acres because soybeans and some other crops obviously don’t have near the need for fertilizer, so I'm going to switch," Linville says. “The problem is, let's say we have a scenario where a lot of the farmers do sit there and decide to switch to soybeans, and that number drops from 91 down to 85 or 87 million acres of corn. All of a sudden, you've got a corn market that starts battling back, and the way it does is with higher prices. Now you've got a situation where it's just-in-time demand, and from a logistical standpoint it is the other scenario that keeps me up at night. It's a bad situation.”

Overall, Farmer Mac economist Jackson Takach says as agricultural products remain in higher demand, and shipping woes take over the supply chain, a timeline of supply issues for all of agriculture could last well into next year.

"It's still incredibly expensive to get containers to move product, if you can even get the containers to move the product," he says. "So, I look at that as a big potential headwind for the sector in 2022. Either we see a pullback from global spending on food, or you see the inability or the cost to ship that food starting to rise and put downward pressure on profitability."

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