The fertilizer market and your farm plan

At this time of year getting your grain off the field is at the top of your mind. Fertilizer purchases may seem like something you can put off for now, but fert pricing is something to keep an eye on. Many factors can impact the price of fertilizer products across the globe at this time of year. Here’s what to watch.

The big factors impacting fertilizer markets

Similar to grain futures markets, both micro and macro-economic factors can impact fertilizer prices. Three of the biggest influencers are:

• Supply and demand in big geographies

Countries with bigger geographies like Brazil or the US tend to be the bigger players when it comes to fertilizer markets as they have a large influence on pricing. As demand increases in these regions, we typically see prices move higher at major supply points like the Arabian Gulf, China, North Africa, and the US. This is especially true for nitrogen fertilizers. Production issues or other such factors in these geographies can have a huge impact on prices.

• Cost of energy

Nitrogen fertilizer is the biggest piece of cost of production. As natural gas moves in the markets, it can largely affect fertilizer prices. Last year, for example, natural gas surged in Europe and fertilizer plants were shut down because of rising costs. They could not competitively make nitrogen fertilizer and sell it, which created a small shortage. This caused market prices to climb higher. North American natural gas prices are currently low so this is not a direct factor in 2023, but it can be largely impacted by the other major countries due to exports decreasing in supply.

• Price of grain

Stronger grain prices can pull fertilizer prices higher, and we were starting to see this in the markets at the end of July. As grain goes up, farmers want to use more nitrogen and other nutrients to maximize yield potential, which in turn causes fertilizer prices to rise because of increased demand.

Summer reset pricing and summer fill

Historically, fertilizer prices in North America tend to be the lowest in summer right after planting because the demand at the farm completely drops off. This is because all production facilities across the continent must keep running, but in order to keep running, they must lower prices due to lower demand. Price then resets in the summer after seeding and in a normal year slowly increases until spring when farmers need more fertilizer. Demand is higher, so price is also higher.

We recently came through summer reset pricing of nitrogen products at the end of July. The Canadian market experienced a urea reset, and in the US we saw a reset in UAN (UAN is the most used fertilizer in the US). Retail uptake was very strong and there was steady demand. Farmers could take product to farm and store it during a good summer fill program due to the price of grain. Ammonia fall prepay was also released in July and had good uptake. The reason for such strong demand is that prices have reached an attractive level that we haven’t seen in years and there is an awareness that price won’t get lower. 

So, what does that mean for fall fertilizer prices?

The North American fertilizer system ended as empty as it has ever been on both sides of the Canada-US border this past season. After planting, all manufacturer, distributor, and retailer fertilizer sheds were empty. There was little to no inventory of nitrogen, phosphorous, sulphur, or potash. A lot of that supply must be replenished ahead of the fall season, particularly potash and phosphorus in the US.

The major watchout going into fall will be phosphates (MAPS 11520) as they are extremely tight on supply. Following an investigation into phosphorus producers in Russia and Morocco several years ago more tariffs have been applied to exports. This leaves only a handful of manufacturers in North America that can temporarily supply the market. With Russia and Morocco being the largest producers of phosphates in the world, this very much limits supply in the US. With everything so empty in supply, suppliers need to fill the system and they are having trouble getting tonnes to warehouses. The price of phosphates has started to really ramp up as there’s not much time to catch up on supply. If you walk into a retail and can manage to secure phos ahead of the fall season, you might want to secure it as soon as possible.

UAN, ammonia, and urea are all also tight on supply heading to the fall but supply should improve through the winter months.

Here’s what you can do to balance purchases and sales

Understanding your break-evens and your current profit will be key in helping you make decisions not only in what fertilizer products to buy, but what grain sales to make going forward. In a perfect world, anytime you buy fertilizer, you should sell grain to lock in that margin.

Hedging your costs on grain sales once you’ve locked in fertilizer costs is one of the easiest ways to begin offsetting your input prices. Find out your cost of fertilizer and make your grain sales decisions accordingly. Keeping an eye on prices at harvest and making sure to pull the trigger when you hit a profitable price will be very important.

If you’re looking for support in offsetting your input costs with grain sales, reach out to your local Cargill rep to discuss what grain marketing strategies might best fit your farm.

 

**Fertilizer market insights were provided by Matthew Rosgen, Canadian Fertilizer Merchandising Manager.**