High nitrogen prices

A front-end loader scoops up urea. Nitrogen prices have skyrocketed because of increased demand and soaring manufacturing costs.

Nitrogen fertilizer prices are skyrocketing due to a combination of global economic forces, hitting record levels not seen in more than a decade.

In the past two months, the price of urea — a common benchmark for other nitrogen products — has soared from about $420 per ton to $700 per ton on the Gulf of Mexico’s wholesale market.

“You can’t point to one thing. It’s a perfect storm hitting us,” said Corey Rosenbusch, president and CEO of The Fertilizer Institute industry group.

For farmers, retail prices must also account for the added costs of transportation and storage, though the specifics depend on location and dealer inventories.

Higher crop values have spurred an increase in fertilizer demand but other factors are also responsible for the recent price surge, experts say.

Significantly, the soaring cost of natural gas, a key input in urea production, has eaten enough into the profits of European manufacturers to force factory curtailments and shut downs.

Europe must instead buy urea from manufacturers in Egypt, which in turn reduces that country’s shipments to other regions, said Deepika Thapliyal, an editor with the ICIS commodity market analysis service.

“It’s just a chain reaction,” she said. “Everybody starts increasing their prices because they know they can get more for their product.”

The resulting upswing in prices has been steep enough to spook the government of China, another major urea producer, which is creating regulatory barriers on exports from that country to protect its nitrogen supplies, Thapliyal said.

“They are scared because their domestic season is going to start soon,” she said, noting that farmers build up fertilizer inventories over winter. “They wanted to keep a check on prices, which is why they’ve restricted urea exports.”

The governments of Russia and Turkey are expected to take similar steps to shield their domestic farm industries from the brunt of higher nitrogen prices, said Julie Meehan, managing editor of fertilizers at ICIS.

“Who’s to say others won’t follow that trend?” she said.

Within the U.S., manufacturers have endured freezing temperatures early in the year and a hurricane in late summer, which constrained nitrogen fertilizer output, said Rosensbusch of The Fertilizer Institute.

“That had a ripple effect,” he said.

Manufacturers are now conducting preventive maintenance that requires factories to shut down while equipment is overhauled, Rosenbusch said.

Such “turnarounds” were postponed last year during the height of the coronavirus pandemic, before vaccines were available, he said. “They wanted to keep the minimum number of employees on plant properties.”

The outlook for nitrogen prices heading into 2022 is unpredictable but lower winter temperatures in Europe don’t bode well for a drop in natural gas prices, which would spur production there, Meehan said.

“There will be a jump in demand from households” for natural gas in the colder season, adding to demand from manufacturing, she said. “There’s just not enough in reserve.”

The supply of nitrogen in the U.S. could be affected by a federal trade investigation into Russia and Trinidad dumping urea ammonium nitrate, or UAN, onto the U.S. market, said Sylvia Traganida, an editor at ICIS.

No countervailing duties have been imposed but the investigation has had a “psychological effect,” with exporters from those countries reluctant to commit supplies to the U.S., she said.

“If it’s not affordable to send it to the U.S., they will send it to Europe,” Traganida said.

In Europe, the high price of nitrogen fertilizers has already convinced farmers to switch from grains to pulses, which require less of the nutrient, Meehan said.

Rosenbusch of The Fertilizer Institute advised farmers to communicate their fertilizer demands and budgets to dealers, which will help with planning for the spring season.

“It may not be available in the form they want it at the exact time they want it,” he said.

Marion Ag Service, an Oregon farm supplier, is “nervous” and “cautious” about the nitrogen situation, said Tom Wimmer, the company’s chief operating officer.

The company doesn’t want to replenish its nitrogen supplies at the current high prices only to see them fall sharply before next spring, he said.

Surging prices in 2008 plummeted just as quickly, but there’s no certainty that will happen again, Wimmer said.

“We hate to see our growers pay those high prices,” he said.

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I've been working at Capital Press since 2006 and I primarily cover legislative, regulatory and legal issues.

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