By: David Widmar, Agricultural Economic Insights
In a post from October, we reviewed fertilizer price trends and noted prices, especially for anhydrous ammonia, had continued lowers. Over the last four years, the relevant budget question has been “how much lower” will fertilizer prices be for the upcoming year. While reduced fertilizer prices in 2018 seemed possible just a few months ago, recent data – based on the USDA’s reported fertilizer prices from Illinois – show fertilizer prices have turned higher for 2018.
Fertilizer Prices
Figure 1 shows the trend in fertilizer prices for three select products- anhydrous ammonia, DAP, and potash- from 2015 through March 2018. As noted earlier, the trend has been for lower fertilizer prices. Anhydrous Ammonia, for example, was more than $725 per ton throughout most of 2015 before falling to as low as $400 per ton last Fall. More recent, anhydrous ammonia prices have crossed back above $500 per ton.
DAP and potash prices have also trended lower. DAP prices, which were more than $550 per ton three years ago, retreated to the $400 per ton level in 2017. Current DAP prices are more than $450 per ton.
Similarly, potash prices reached a low in late 2016 but have since turned higher.
Figure 1. Average fertilizer prices for Anhydrous Ammonia, DAP, and Potash in IL, 2015 – March 2018. Data Source: USDA AMS.
To consider recent price changes, figure 2 shows the relative changes in prices from last spring (the average of prices reported in April and May 2017) to recent prices (the average of prices reported in February and early March 2018).
First, nitrogen prices have not adjusted uniformly since last spring. This is something we noted in the October 2017 post. Specifically, anhydrous ammonia and liquid (28%) forms of nitrogen are lower (-3% and -4%) while urea prices as 4% higher.
Outside of nitrogen, phosphorous and potash prices are higher compared to last Spring. DAP has been reported 10% higher while potash prices are 6% higher.
Figure 2. Change in Reported Fertilizer Prices in Illinois. Average of Feb./March 2018 versus April/May 2017. Data Source: USDA AMS.
More on Nitrogen Prices
Anhydrous ammonia prices fell sharply last fall before recovering. As shown in figure 1, anhydrous ammonia was price around $500 per ton last spring but fell to nearly $400 per ton last fall. More recently, prices are again around $500 per ton. This is large price swing. The increase from $400 per ton last fall to more than $500 per ton most recently is roughly a 25% increase ($100 increase on $400 per ton). The short-lived price dip created a significant savings opportunity for producers who priced or applied their anhydrous ammonia in the Fall. This will likely be one of those “years” that are remembered for many to come.
Last Fall we noted the drop in anhydrous ammonia prices – while urea and liquid 28% stay mostly steady- created a significant price relationship. Specifically, urea and liquid 28% were priced – on a unit of nitrogen basis- at historically high levels. While these sources are typically a higher priced source of nitrogen, (a unit of nitrogen from urea being an average of 1.21 times the price from anhydrous ammonia; liquid 28% 1.36 times), they were well above long-run averages. In recent months, the relationship has returned to near average levels as anhydrous ammonia prices turned higher.
Figure 3. Price Relationship Between Nitrogen Fertilizers – Urea to Anhydrous Ammonia (blue) and 28% to Anhydrous Ammonia (red), Jan. 2010 to March 2018.
Fertilizer Expense
The field level implication of changes in fertilizer prices is shown in figure 4. Fertilizer expense reached a high of more than $160 per acre in 2011, 2012, and 2013 before turning lower in recent year. The assumed corn fertilizer application rate of 180-70-70 (using anhydrous ammonia for nitrogen) cost $101 per acre in Spring 2017.
Last Fall, the expense for this fertilizer rate reached a low of $89 per acre. Given recent prices, corn fertilizer expense is currently $103 per acre. This is slightly higher – but mostly unchanged – from 2017’s expense ($101 per acre).
While fertilizer prices have turned higher, it is worth noting just how much of a decline has occurred. Fertilizer expense has fallen from $162 per acre in 2013 to $103 per acre in 2018. This is a significant, $59 per acre decline (or 35% lower) in fertilizer expenses.
Figure 4. Estimated Corn Fertilizer Expense of a 180-70-70 Application with Spring Prices, 2010- Feb./March 2018.
Wrapping it up
Last Fall, it seemed fertilizer prices – and budgeted fertilizer expense- would be again lower in 2018. This was driven mostly by a significant drop in anhydrous ammonia prices. However, fertilizer prices have increased and fertilizer expenses are expected to be slightly higher than 2017.
As always, the farm-level impact of fertilizer prices will depend on several factors. First, prices changes can vary by fertilizer products. For example, compared to Spring 2017, some nitrogen fertilizer products are lower priced while others are higher (Figure 2). The second source of farm-level variability is the timing of producers’ decision to price fertilizer. This will likely be a year that many remember and cite for locking-in Fall fertilizer prices. Anhydrous ammonia prices are almost 25% higher than in October 2017.
Lower fertilizer prices have been a major source of improvement in crop budgets. The application of 180-70-70 in 2018 is nearly 35% less than five years ago