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CoBank: Higher fertilizer prices likely to persist into 2022 spring planting season
By Doug Schmitz
Iowa Correspondent

GREENWOOD VILLAGE, Colo. – While the situation will eventually correct itself, high fertilizer costs will persist into the spring 2022 planting season “at minimum,” according to a new analysis by CoBank.
“We base this conclusion in part on a recent farmer survey and university study, both of which place the odds of high prices persisting at 70 percent, or above,” said Kenneth Scott Zuckerberg, a lead analyst and senior economist in CoBank’s Knowledge Exchange division.
He said farm supply cooperatives appear to be better managing risk today, compared to 2008-2009, when a sudden drop in fertilizer prices forced some cooperatives to write down fertilizer inventory.
“In an environment of volatile crop and natural gas prices, the key, of course, is for retailers to match selling prices to the farmer with rising wholesale costs,” he said.
He said U.S. crop farmers and the farm supply cooperatives serving them are facing operational anxiety heading into 2022, driven by high fuel prices, shortages of agrochemicals (i.e., herbicides, fungicides, insecticides), due to COVID-19-related disruptions and, most importantly, the recent parabolic rise in fertilizer prices.
He added that three issues are behind the rise in fertilizer prices and the further tightening of global fertilizer supplies relative to demand:
1) Higher natural gas prices (a key feedstock used in the production of nitrogen-based fertilizers) due to production shocks that occurred from July to October 2021 in China and England. The rise in gas prices resulted in higher prices of phosphate and urea fertilizers produced in China, and higher prices of ammonium nitrate fertilizer produced in England.
2) A temporary shutdown of CF Industries’ Donaldson fertilizer facility (the world’s largest nitrogen operation located in Ascension Parish, La.) due to power outages caused by Hurricane Ida.
3) Fertilizer export restrictions by China and Russia, and countervailing (offsetting an effect by countering it with something of equal force) tariffs on urea ammonium nitrate solution imports to the United States from Russia (as well as Trinidad and Tobago), combined with economic sanctions placed on potash imports from Belorussia.
He said recent talk in the industry suggests U.S. farmers will plant more soybeans and less corn in 2022 due to rising fertilizer prices.
“While technically true, compared to 2021 (i.e., that soybean acres will rise nominally and corn acres will fall nominally relative to each crop’s actual planted acres in 2021), we do not see a crop mix scenario of higher soybean acres over corn in absolute terms for a few reasons,” he said.
“We expect U.S. ethanol producers’ demand for corn to remain strong amidst current high fuel prices and record blending margins, and we expect a slowdown in soybean sales to China,” he added. “The USDA’s Nov. 5 acreage baseline update aligns with this, forecasting 92 million corn acres versus 87.5 million soybean acres for the 2022-23 crop year.”
Although corn acreage is forecast to drop 1.3 million acres, he said this is primarily due to increased acres for wheat and cotton, both of which are currently at or near record-high price levels.
“Given the above, the current price ratio of soybeans to corn, admittedly a simple tool, shows that soybean prices are currently quite weak relative to corn,” he said. “At present, soybean prices are only 214 percent of corn prices, compared to a long-term average of 253 percent.”
According to the USDA, higher price ratios indicate soybeans are relatively more profitable than corn, while lower ratios indicate the opposite and thus support greater planting of corn.
“Using a more sophisticated analysis, researchers with University of Illinois and The Ohio State University have shown that in a high-producing region of the Corn Belt, the pro forma (financial statement) 2022 crop budget for corn pencils out to be even more favorable to corn than it was in 2021 (despite the record high fertilizer costs and given the current price ratios),” Zuckerberg said.
“Finally, based on anecdotal evidence compiled from ongoing conversations with CoBank farm supply cooperative customers, executives at large crop input suppliers, and farm producers, most in the industry agree that corn acres should remain dominant over soybeans in 2022, even with prices for anhydrous ammonia rising toward $1,200 per ton,” he added.
He said while some university and independent research may indicate a logical theoretical case for switching to soybeans from corn when fertilizer prices rise, farmers in the real world often reduce or skip fertilizer applications to manage costs rather than apply recommended levels.
“And as one corn farmer indicated to us, he would rather buy and apply less fertilizer in order to save money (even if yield goes down) rather than ‘pay through the nose for inputs,’” he said.
Regardless of the marginal shifts in crop acreage for 2022, he said the key question is whether prices of nitrogen fertilizer – namely ammonia/anhydrous ammonia, granular urea, urea ammonium nitrate solution, and ammonium nitrate and phosphate – will decline, given ample supplies of potash in North America.
Over the next six months, the CoBank analysis said there is a high probability that fertilizer prices will remain elevated against a backdrop of record general inflation, above-average natural gas prices, tight global nitrogen supplies and continued strong farmer demand.
“Further, we do not forecast that soybean acres will exceed corn acres due to high nitrogen-based fertilizer prices, although that will likely change in the longer term as biofuel production leans more toward soybeans (for use in renewable diesel) versus corn (used in ethanol),” Zuckerberg said.
“Finally, in contrast to the 2008 to 2010 period, farm supply cooperatives appear more focused on managing the risk of write downs (reductions in the nominal value of stock or goods) of fertilizer inventories, should a rapid drop in prices occur,” he added.