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Lower fertilizer prices have been an important source of crop budget improvements in recent years. From 2014 to 2016, a majority of corn production costs reductions came from lower fertilizer expense. Last fall, we noted that fertilizer prices were again lower and could provide additional relief to crop budgets in 2017. Recently, however, fertilizer prices have turned higher. This week’s post looks at 2017 fertilizer prices and the farm-level implications.
Fertilizer Price Trends
The USDA’s AMS provides Illinois fertilizer price data. In figure 1, anhydrous ammonia prices are shown since January 2015. After spending most of Fall 2016 near $500 per ton – and briefly falling to nearly $480 per ton in January – anhydrous ammonia prices have trended higher in recent weeks. Most recently at $522 per ton, anhydrous ammonia prices have jumped $41 per ton (or 8%) since the first week of January.
Figure 1. Average Price of Anhydrous Ammonia in Illinois, Jan. 2015 – March 2017. Data Source: Illinois Production Cost Report (USDA AMS).
The uptick in prices has been most significant with urea, shown in figure 2. Urea prices spent most of Fall 2016 above $300 per ton, but current prices have turned higher to $361 per ton, or 19% higher.
Figure 2. Average Price of Urea in Illinois, Jan. 2015 – March 2017. Data Source: Illinois Production Cost Report (USDA AMS).
It is worth noting that an uptick in prices occurred in Spring 2016 as well. From March 2016 to early April 2016, anhydrous ammonia prices – as an example – jumped nearly $50 per ton (or 9%). This is to say that price upticks are not uncommon, especially prior to planting.
The price upturn extends to phosphorus and potassium fertilizers as well. In figure 3, prices for anhydrous ammonia, DAP, and potash are shown since 2010. The prices of DAP has increased nearly 3% since January lows while Potash has climbed 12% since August 2016. In all cases, current fertilizer prices are below early 2016 levels, and well below the highs reached between 2011 and 2013.
Figure 3. Illinois Fertilizer Price for Select Products – Anhydrous Ammonia, DAP, and Potash, 2010 – March 2017. Data Source: Illinois Production Cost Report (USDA AMS).
Nitrogen Price Relationship
The sharp uptick in urea prices (up 19%), relative to anhydrous ammonia (up 8%) has shifted the price ratio of these two products. Currently, urea is 1.23 times (or 123%) the price of anhydrous ammonia (on a per-unit of nitrogen basis). This is higher than the price ratio levels of Fall 2016 (below 1.10), and is above the 8 year average of 1.20 (graphed in orange). Furthermore, the current urea-anhydrous ammonia price ratio is the highest since September 2014.
This change in the price ratio means that, on a per-unit of nitrogen basis, urea has become relatively even more expensive than anhydrous ammonia. For the data shown, urea has always been more expensive source of nitrogen (ratio greater than 1.0), but urea has become even more expenses in recent weeks. Producers should carefully consider their options and local prices as they finalize fertilizer decisions.
Figure 4. Price relationship between Urea and Anhydrous Ammonia (Urea/Anhydrous Ammonia), Jan. 2010 to March 2017.
Even though fertilizer prices have turned higher in recent weeks, prices are still below 2016 levels. This is best illustrated by considering the expense for a 180-70-70 nutrient blend (anhydrous ammonia, DAP, and potash) (Figure 5). The expense of this fertilizer rate is shown using Spring prices from 2010 to 2016 and March 2017 prices. The current fertilizer expense for this rate is $100 per acre, $12 lower than in 2016 and the lowest in of last 8 years. Lower fertilizer prices have driven fertilizer expense considerably lower in recent years. In 2013, the same nutrient application would have cost $163 per acre. Assuming a 180 bushel per yield, the $63 per acre decline in fertilizer expense since 2013 is a $0.35 per bushel decline in production costs.
Figure 5. Estimated Fertilizer Expense for Apply a Corn Fertilizer Rate of 180-70-70 using Anhydrous Ammonia, DAP, and Potash, 2010 – March 2017. Fertilizer Price Data: Illinois Production Cost Report (USDA AMS).
Fertilizer prices in recent weeks have turned higher. The up-turn in prices has not been uniform across nutrients (DAP higher 3% while Potash up 12%) or across products of the same nutrient (anhydrous ammonia up 8% while urea up 19%).
The uneven increase in prices of nitrogen fertilizers has pushed the urea-anhydrous ammonia price ratio higher as urea has become relatively an even more expense source of nitrogen. While urea is historically a more expensive source of nitrogen, the price ratio has gone from below-average to above-average levels.
Even though fertilizer prices have turned higher in recent weeks, producers can still expect lower prices and fertilizer expense in 2017 than in recent years.
Finally, producers could further reduce fertilizer expense by adjusting application rates. This is something we previously discussed and a management strategy that 46% of producers indicated they were considered (according to an October 2016 Purdue Survey of producers).
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Photo Source: Flickr/Thirteen of Clubs. “Anhydrous Ammonia”