The good news is that your nitrogen (N) prices will decline; the bad news is that corn prices will likely fall further. Corn prices are forecast to fall 38% in 2014 relative to 2013, according to Gary Schnitkey, the Illinois Farm Management Extension economist known for tracking these things (http://bit.ly/fert_Prices). Fertilizer costs for corn are likely to decrease by 19% to 27%. Put another way, corn fertilizer costs will decrease “by $60 per acre while crop revenue for corn may be down by more than $300 per acre, says Schnitkey on the University of Illinois’ farmdoc site.

Reasons for this include lower natural gas prices (from the large Pennsylvania Marcellus Shale formation’s increased production), and more N-manufacturing capacity coming online, he says.

Ammonia prices have correlated closely with natural gas prices, especially since 2000.

“Ultimately, predicting prices cannot work for anyone,” says Michael Swanson, Wells Fargo senior vice president and agricultural economist. “Farmers need to be more concerned about locking in a ratio between their nitrogen needs and their future corn sales.  The market has been relatively responsive moving the price of fertilizer with the price of corn.”

Emotion and Mother Nature play a role in the fundamentals of N pricing, says Scott Manwarren, CHS Upper Midwest region supply and marketing manager, crop nutrients, Inver Grove Heights, Minn. As someone dealing with supply and logistics, he feels that “Bottom line, (N prices) are all about timing. The timing of spring demand will provide a strong indication to fertilizer market direction. The first corn planted is the best corn, and the mentality of ‘being the first’ supports N prices,” he says. “Only so much product can be shipped on a pipeline or stored in warehouses. The farmer wants the product when he wants it.  One factor that plays into market direction is the Mississippi River being closed/frozen ahead of the typical spring season,” Manwarren adds.

But, these seasonal concerns are the same from year to year, and less of a price driver, Schnitkey says. “Nitrogen pricing is more about corn prices, planting expectations, and N-manufacturing expansion, which is building right now,” he says.

From 2006 to 2012, fertilizer costs increased by 161% for corn grown on high-productivity land in central Illinois, Schnitkey says. 2012 saw the highest per-acre fertilizer costs in history for those farms, he adds.

 

Demand side

Several analysts interviewed for this article estimate about 92 million corn acres will be planted this spring, representing a relatively strong, but not record demand for N relative to recent years.

Longer term trends in N application, such as more sidedressing N and N stabilizers even out the spring demand spike. Add to that the move from anhydrous to liquid N, and soybeans being more profitable this coming year, should all calm N prices, in addition to lower natural gas prices, Schnitkey adds.

Consider also these market forces:

  • A related graph gallery shows a roughly 300% increase in Marcellus-formation natural-gas production from 2009-10 to 2012-’13. Falling prices for N’s main feedstock has to be good news for you.
  • There are 17 N-manufacturing expansion projects underway in North America. Weaker corn prices and high construction costs mean that perhaps only half may actually be built, according to CF Industries’ Doug Hoadley’s N outlook at a recent Fertilizer Institute (TFI) outlook conference. Hoadley, CF’s director of agribusiness analysis, bases his stable-to slightly higher N-application rates on 92 million acres of corn and 56.5 million acres of 2014 wheat planting intentions.
  • Although China is the fastest growing global N producer, its N is made from coal, a less competitive feedstock, analysts say. The largest N-producing countries are China, India, the U.S. and Russia. The U.S. can produce 12.5 million material tons of ammonia used as a fertilizer, as a building block for other N products and for industrial uses, according to TFI data.
  • More domestic N simplifies your transportation and security of supply.

Price decreases this large happen rarely

While 2014 price declines are large, further downward pressure may exist on fertilizer prices, according to the University of Illinois’ farmdoc website. USDA’s Agricultural Marketing Service reported 27% price drops for Illinois price averages ($651 per ton) (reported Jan. 23, 2014).

Price decreases this large happen rarely.  Since 1975, anhydrous ammonia prices decreased more in only three years:  -33% in 1976, -38% in 2002, and -34% in 2010. Larger DAP price decreases only occurred in two years:  -33% in 1976 and -27% in 2010.  Since 1975, a larger decrease for potash price only occurred in one year: -23% in 2010. 

While 2014 price declines are large, further downward pressure may exist on fertilizer prices, Schnitkey writes on farmdoc (http://bit.ly/1dvfVcP).