October 30, 2017
Lower Fertilizer Prices in 2018? Keep an eye on Nitrogen
By David Widmar
When thinking about crop budgets and potential returns in 2018, fertilizer is a big expense category, especially for corn production. At $111 per acre of corn in the 2017 Purdue Crop Budgets, a change in fertilizer prices can quickly impact potential profitability.
After surging with commodity prices, we noted that fertilizer prices and expense have decreased in recent years. This week’s post takes a look at current fertilizer price data and the potential for lower fertilizer prices in 2018.
Fertilizer Price Trends
The USDA’s AMS provides fertilizer price data from Illinois every two weeks and is an incredibility valuable data source. Figure 1 shows the price trends of three primary fertilizer sources – Anhydrous Ammonia, DAP, and Potash – since 2010.
After resisting to slide below $500 per ton in late 2016 and early 2017, anhydrous ammonia prices in recent months fell to $400 per ton, the lowest levels since 2010. Overall, the price drop in anhydrous ammonia has been most dramatic in recent years. After spending much of 2011-2015 at or above $800 per ton – peaking at nearly $900 per ton in 2013- prices have declined by almost half. The average anhydrous ammonia price in October 2017 was $405 per ton, down from the average of $522 per ton (or 23% lower) in April and May 2017.
DAP and potash prices have following the same general trend, but have been mostly flat since the Spring. In October, DAP prices averaged $429 per ton (down 1% from Spring prices) while potash prices of $324 are also 1% lower.
The farm-level implications of lower fertilizer prices declines are important to consider. In Figure 2, the average spring fertilizer prices (April to May) are used to estimate corn fertile expense, on a per acre basis, assuming an application of 180-70-70 using anhydrous ammonia, DAP, and potash.
Currently, the 2018 estimated cost of this application -using October 2017 prices- is $89 per acre, down from $101 in the Spring of 2017 (down 11%). Corn fertilizer expense has significantly fallen from the $160 per acre levels reached in 2011, 2012, and 2013. Overall, fertilizer prices have dropped 45%, or $73 per acre, from the 2011-2013 average.
While lower fertilizer prices have been an important source of improvement in crop budgets, it is important to note the price declines have not been uniform. In the scenario outlined in figure 2, the price of anhydrous ammonia fell 40% ($78 per acre to $38 per acre) and accounted for more than half of all fertilizer expense savings (55% of the total decline). On the other hand, DAP prices fell 33%, and potash price fell 46%.
Keep an Eye on Nitrogen Prices
Anhydrous ammonia prices have fallen 23% from spring prices, but smaller declines have been observed with other nitrogen fertilizers. Urea prices have declined 6% while the price of 28% liquid nitrogen has declined 13%. The non-uniform decline in prices has created an interesting price dynamic among sources of nitrogen.
Figure 3 shows urea and 28% prices – on a per unit of nitrogen basis- relative to anhydrous ammonia prices. Overall, urea and 28% prices are higher priced than anhydrous ammonia (the relative prices since 2010 are greater than 1.0). Since 2010, per unit of nitrogen prices of urea have been 1.20 times the price of anhydrous ammonia. Meanwhile, the average price for liquid 28% was 1.36 times anhydrous ammonia prices.
Throughout 2016, the relative prices were below the averages as urea was mostly 1.10 times and 28% was around 1.30 times. By early 2017, prices returned to the average levels.
In recent months, however, the price relationship has increased considerably as anhydrous ammonia prices have fallen. The price of urea was 1.45 times anhydrous ammonia prices in October. This was the highest-level since 2012. Liquid 28% nitrogen reached a seven-year high of 1.66 times in late August.
These price relationships will be important to monitor into 2018. Producers that can switch nitrogen sources may consider using more anhydrous ammonia in 2018. Of course, the price relationship can quickly change should anhydrous ammonia price rise, or urea and 28% prices fall.
The declines in fertilizer prices have been an important source of crop budget improvements in recent years. While the price for anhydrous ammonia has declined the most, all forms and sources of fertilizer are well below the highs reached between 2011 and 2013.
Using current fertilizer prices, corn fertilizer expense in 2018 may be around $89 per acres for an application of 180-70-70 – the lowest levels in eight years. Furthermore, this would be 11% lower than in 2017 and mostly driven by lower anhydrous ammonia prices.
Looking to 2018, producers should keep an eye on the price relationship among nitrogen fertilizers. In recent months, the prices for urea and 28% have increased relative to anhydrous ammonia. For liquid 28% and urea, relative prices have reached highs not seen in recent years.