PEORIA, Ill. – Farmers were prepared to face a number of financial risks heading into the 2022 growing season. With Russian troops and armament poised at Ukraine’s doorstep at press time, geopolitical risk just rose to the top of the list.

The risk is largely because of how a Russian invasion of oil-rich Ukraine would affect already exorbitant prices for fertilizers, which, depending on the type and production method, are heavily dependent on crude and natural gas. This is according to Kevin “KJ” Johnson, executive director of the Illinois Fertilizer and Chemical Association (IFCA), who spoke at length about fertilizer price factors with Farm World following the IFCA’s 2022 Conference and Trade Show, held Jan. 14-18 at the Peoria Civic Center.

“The consensus is that prices will start to tick down on fertilizer prices. I agree with that, but with one caveat: everything goes back to natural gas prices on nitrogen,” Johnson said. “We’re looking at $6 per cubic foot for natural gas, and the biggest problem we’re facing is that Russia has literally shut off the pipeline to natural gas in Europe, where natural gas is $23 to $26 per cubic foot. Many manufacturers of fertilizer over in Europe have had to shut down.”

The resultant price for fertilizers even has the member-retailers of the IFCA up in arms, according to Johnson, who said the slim or non-existent markup dealers are applying to fertilizer products won’t help keep them in business.

“The other (factor) is China,” Johnson continued. “China produces a third of the world’s phosphates. The U.S. does not buy many phosphates out of China, but they are not going to export any phosphates to any country until at least the middle of this year. You have Brazil, Argentina and other countries that will buy that Chinese phosphate, but now they are going to Canada, where we buy our phosphates. That has driven up (the phosphate) market.”

The common thread linking all of the fertilizer varieties used by farmers – nitrates, phosphates, urea – is the world market that shares the limited resources. This, Johnson explained, is why resource availability in foreign countries so greatly influences U.S. fertilizer prices.

“The United States only uses 10 percent of the total world production of fertilizers. But if there is a hiccup in any other country, it’s going to affect everybody down the chain,” he said.

The IFCA president said a worst-case scenario for fertilizer prices – and prices consumers pay for many other needed items – could be sparked by a successful invasion of Ukraine by Russia, or a prolonged military conflict in the region.

“If they cut off natural gas to everybody, it could go (badly) very quickly,” Johnson said. “I think we will see some of this tick down in the coming months, but this is tied directly to fertilizer prices. This is truly global, and I would hate to see what happens to the crude and natural gas markets, to which the nitrogen industry is totally dependent. Seventy-five percent of the price of ammonia is natural gas.”

Johnson noted that an overall mild winter has lessened domestic stress on natural gas for heating, though an extreme cold snap could shift demand upward. This is what occurred in February 2021, igniting an upward price spiral that has yet to reach an apex. “If we have a mild winter through March, I think you will see prices start to come down. Will it take half the price out of the price for nitrogen? I’d be lying if I said I knew that, but I do think it would tick down. We have to watch the world market and what’s going on there.”

With urea currently – and uncharacteristically – the cheapest form of fertilizer available to farmers, Johnson acknowledged that a prolonged spike in natural gas prices could boost the popularity of the powder-based plant food. “Do I think everyone will switch to urea? Absolutely not. But we’re having more conversations about buying urea than we’ve had in the past 10 or 15 years,” he said.