Prices for nitrogen fertilizers have more than recovered from the demand shock of the coronavirus pandemic, reaching highs not seen in years due to strong grain markets.
Urea, a common nitrogen type that reflects global fertilizer prices, is trading at about $450 per short ton along the Gulf of Mexico wholesale market, compared to less than $200 per short ton roughly a year ago.
Activity in the nitrogen market is hectic even though it’s not traditionally the season for intense fertilizer demand, said Julie Meehan, managing editor of fertilizers at the ICIS commodity market analysis service.
“We should be in a quiet period when we should see prices coming down,” she said. “That’s not the case. It’s really frantic.”
The demand for nitrogen fertilizers has risen along with the prices of grain, which are at eight-year highs, she said. Large Chinese corn purchases from the U.S. are partly responsible for the increase, as are easing restrictions associated with the coronavirus and improved economic activity.
“A lot of this grain story is related to COVID,” Meehan said. “If you’re selling fertilizer it’s most certainly been a positive.”
Though the grain market’s strength is the underlying reason for higher nitrogen prices, they’ve also been buoyed by recent export restrictions in China and Egypt, which want to ensure there’s enough fertilizer for domestic farmers, she said.
Unexpected outages at facilities that produce ammonia — a crucial input — in Saudi Arabia and Trinidad and Tobago have further curtailed supplies, while potential environmental restrictions on Turkish manufacturers could also affect the market, Meehan said.
“You’ve got all these factors going on at the same time,” she said.
The market fundamentals don’t point to an imminent reversal in the nitrogen price, Meehan said. “My money is that it will stay firm.”
CF Industries, a major U.S. nitrogen producer, has a similar outlook for fertilizer prices.
The company’s net income more than doubled, from $68 million to $151 million, compared to the first quarter of 2020, according to a report with the U.S. Securities and Exchange Commission. The company’s revenues grew from $971 million to $1.048 billion while its costs decreased slightly.
The company’s healthy financial performance came despite a major freeze in February that knocked production facilities offline, said Tony Will, its CEO, during a conference call with investors last month.
“We expect grain prices to remain strong through several growing cycles and farmers are incented to maximize yield, driving demand for nitrogen,” he said.
Demand for nitrogen imports is expected to be high in Brazil and India, where new fertilizer facilities have been built but haven’t increased production in the aggregate, said Will. Excess production probably won’t materialize this year.
“As new production comes on, some older production is curtailed or taken offline,” he said.
Similarly, global grain stocks are low and probably will not be replenished in just one season, which is likely to sustain higher nitrogen prices, said Bert Frost, the company’s senior vice president of sales, market development and supply chain.
“We’re operating in the most favorable environment we’ve seen in many years, and we believe this will have a relatively long tail,” he said.