October 11, 2021

Breaking Down 2021’s Higher Fertilizer Prices in Five Charts

By David Widmar

We regularly write about fertilizer prices as this particular input accounts for a large share of variable production expenses. While the recent surge in fertilizer prices has been widely discussed, this week’s post breaks down the latest data to provide five insights.

1) From Lows to Highs

Last year, we wrote that fertilizer prices were approaching decade lows. Twelve months later, fertilizer prices now approach decade highs (Figure 1). In early October, anhydrous ammonia was at an average of $856 per ton, slightly off the 2013 high of $892 per ton. DAP and potash, however, are considerably higher than previous highs. Current DAP prices are $780 per ton, compared to the previous high of $710 in late 2011. Potash is currently at $725 per ton, well above the previous high of $645 (2012).

While nitrogen receives the majority of attention, current phosphorus and potash prices are arguably a more significant challenge than nitrogen. While all prices are higher, it’s P & K that are at decade-high levels.

Figure 1. Price of Select Fertilizer, Average Price Reported in Illinois, Jan. 2010- Oct. 2021. Data Source: USDA AMS and aei.ag.

Figure 1. Price of Select Fertilizer, Average Price Reported in Illinois, Jan. 2010- Oct. 2021. Data Source: USDA AMS and aei.ag.

2) Timing Matters

Figure 2 shows the changes in fertilizer prices since spring 2021 (in blue) and spring 2020 (in red). Again, this shows that phosphorus (DAP, +84%) and potassium (potash, +87%) prices have increased the most in the last 18 months. Second, the degree of sticker shock depends on which time frame you consider. While anhydrous ammonia prices are 14% higher than spring 2021 and 59% higher than spring 2020 prices, they have nearly doubled since September 2020 lows (+98%). This fall, many producers are pricing fertilizer at levels nearly double the decade-lows they locked in a year ago.

Figure 2. Change in Reported Fertilizer Prices, Fall ’21 versus Spring ’21 and Spring ’20. Data Source: USDA AMS and aei.ag.

Figure 2. Change in Reported Fertilizer Prices, fall ’21 versus spring ’21 and spring ’20. Data Source: USDA AMS and aei.ag.

3) Record Expense Per Acre

Fertilizer prices don’t change uniformly, so it’s important to consider the acre-level implications. Figure 3 shows the estimated cost of applying a corn fertilizer blend of 180-70-70. Currently, the fertilizer expense totals $171 per acre, up $72 per acre (72%) from spring 2020 levels. Furthermore, the current expense is higher than the spring average prices ($160 per acre) observed during 2011-2013. Last fall, we noted the expense hit a low of $92 per acre.

Of course, an acre of corn in 2022 has a higher yield potential than the same acre in 2011-2013, which means the cost per bushel in 2022 is lower. While not shown, fertilizer expense was a high of $1.00 per bushel (budgeted yield) in 2011 and would be $0.95 per bushel at current prices. Fertilizer was a low of $0.59 per bushel in 2017.

Figure 3. Estimated Corn Fertilizer Expense, Spring Prices, 2010-2021. Data Source: USDA AMS and aei.ag.

Figure 3. Estimated Corn Fertilizer Expense, Spring Prices, 2010-2021. Data Source: USDA AMS and aei.ag.

4) Relative Price Matters

While all fertilizer is higher, producers should still consider the prices of alternatives. Figure 4 shows the price relationship between anhydrous ammonia (NH3) and urea. On average, a unit of nitrogen from urea costs 1.25 times the price of a unit from anhydrous ammonia. Relative urea prices have been above this long-run average since 2019 but have recently jumped to 1.55, the highest since 2012.

While not shown, liquid 28% prices are also historically high relative to anhydrous ammonia. That said, liquid 28% might be more appealing than urea for producers considering those alternatives.

In most cases, the decision to switch nitrogen inputs is complex and involves equipment and timing considerations. That said, the combination of higher fertilizer prices and historical differences between alternatives could provide an opportunity for some producers. Relative price could become even more important if supply chain and availability concerns continue.  

Figure 4. Relative Unit of Nitrogen Prices, Urea/NH3, Jan. 2010 to Oct. 2021. Average: 1.25. Data Source: USDA AMS and aei.ag.

Figure 4. Relative Unit of Nitrogen Prices, Urea/NH3, Jan. 2010 to Oct. 2021. Average: 1.25. Data Source: USDA AMS and aei.ag.

5) Higher Fertilizer and Corn Prices

There are several ways to consider the current fertilizer price situation: cost per acre, cost per bushel, or even fertilizer expense as a share of budgeted revenue (Figure 5). While each of these is helpful to consider, they collectively underscore how hard it can be to summarize the situation in a single chart or soundbite.

Figure 5 shows fertilizer expense in comparison with budgeted revenue. Current data suggest fertilizer expense will account for 18% of projected revenue in 2022, up from recent years. Notice that this measure of fertilizer’s financial burden was at a high of 20% in 2015, which was not when fertilizer expense per-acre basis peaked (Figure 3).

Again, there are many ways to attempt to summarize the current situation, but it’s important to keep in mind that the financial hurdle – or pain – of fertilizer depends on fertilizer prices, commodity prices, and the overall crop budget situation. In other words, be careful jumping to a conclusion about profitability, crop budgets, or acreage allocations in 2022 based solely on fertilizer prices. Low fertilizer prices by themselves don’t necessarily mean crop budgets are profitable or that corn is more attractive than soybeans. Conversely, high fertilizer prices don’t necessarily mean crop budgets are unprofitable or corn is less attractive.

Figure 5. Fertilizer Expense as a Share of Budgeted Revenue. Data Source: USDA AMS and aei.ag.

Figure 5. Fertilizer Expense as a Share of Budgeted Revenue. Data Source: USDA AMS and aei.ag.

Wrapping it Up

The wild swing in fertilizer prices over the past twelve months will be remembered for many years to come. Looking ahead, uncertainty about where prices go in the next six months, combined with concerns about availability, can create significant angst and stress. In addition to the insights and charts shared above, a helpful starting point for producers is updating and reviewing their specific budgets, including both costs and revenue projections.

In conclusion, singularly focusing on fertilizer costs can distort our thinking. For 2022, higher fertilizer prices will be offset in part by commodity prices being considerably higher than just a few years ago.

 

Still curious? We dug even deeper into our companion AEI Premium article.

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