• Mike von Massow

Fertilizer Price Increases: Should Farmers be Worried?

Nicholas Bannon, Daniel Schuurmann, Alfons Weersink, and Ken McEwan

 

While overall inflation is at its highest level in 30 years, this rate of increase is dwarfed by the huge increases in global fertilizer prices over the last year. Ontario farmers were not immune to these price increases, and most farmers likely noticed a dramatic increase in their input costs in 2021 compared to 2020. The reason for the price increases in fertilizer is due to several global events occurring almost simultaneously. Fertilizer shortages in China (1), the energy crisis in Europe and China, rising costs of natural gas and fertilizer production (2), higher freight costs and plant closures due to extreme weather events in the United States all factor into the current fertilizer prices.


Despite an early pessimistic view of corn and soy prices at the beginning of the pandemic in 2020, prices soared and reached their highest levels in years. This increased demand for fertilizer, and because production facilities were initially bracing for lower demand, the global fertilizer supply was tight. Continued disruptions in the global supply chain that occurred throughout 2021 are also putting fertilizer in short supply and placing upward pressure on prices.


Exactly how much more did Ontario farmers pay for fertilizer in 2021? Across five commonly used fertilizers, price data (3) reveals the average price for these fertilizers increased by 33% in 2021 compared to 2020 price levels. For specific fertilizers, such as UAN and MAP, prices increased by as much as 40% and 48%, respectively. A more detailed comparison of prices across five fertilizers in relation to their 2020 price is presented in the figure below.



Interestingly, when looking at fertilizer prices across a longer time horizon, the most recent increases experienced in 2021 appear to be partially inflated by below-average prices in 2020. For many fertilizers, the difference between 2020 and 2021 prices was larger than the changes experienced throughout 5 and even 10 years prior, as well as when comparing the recent increases to that of the historical 10-year average price. For UAN and MAP, the two fertilizers which experienced the largest increases, 2021 prices were 30% and 25% above prices 5 years prior, but only 15% and 14% above prices 10 years prior. Compared to the average prices over the previous decade, UAN and MAP prices in 2021 were up 19% and 25%.


The recent jump in fertilizer prices appears to be part of a longer-term trend of higher global fertilizer price volatility in the years following the 2008 financial crisis. As the figure below shows, global prices for DAP, Triple Superphosphate (TSP) and Urea were relatively stable in the decades leading up to the 2008 crisis, but in the years following were subject to greater fluctuations. This observation combined with the disruptions and impacts stemming from the COVID-19 pandemic helps to provide perspective on the price increases in fertilizer over the past year.



The high prices will be consequential for farmers purchasing fertilizer this spring, but crop prices remain high. They should continue to monitor prices, including the Canada/US exchange rate, communicate with local suppliers, and take precautions such as forward buying to lock in input prices. High corn and soybean prices allowed many farmers to obtain strong margins despite rising input prices last year. As input prices tend to follow commodity prices, it will be concerning if fertilizer prices remain high and commodity prices decline in the coming year. This outcome is likely contingent on global and domestic fertilizer supply and whether supply chain disruptions and high freight costs persist throughout 2022.


[1] Large fertilizer companies in China, the leading exporter of phosphorus, agreed to suspend exports to ensure domestic supply through June 2022.

[2] Natural gas constitutes the largest variable cost in most fertilizer products

[3] Price information was obtained from historical data collected by the University of Guelph – Ridgetown Campus during its bi-annual survey of crop input suppliers.


#fertilizer #farming #agriculture #climatechange #emissions

 

Recommended citation format: Bannon, N, Schuurmann, D., Weersink, A, and K. McEwan. "Fertilizer Price Increases: Should Farmers be Worried?". Food Focus Guelph (123), Department of Food, Agricultural and Resource Economics, University of Guelph, February 1, 2022.