Fertilizer prices have risen quickly, and the National Corn Growers Association is warning that new tariffs on imports could make the situation even worse for farmers.
Price spikes for nitrogen fertilizers are making planting especially costly, according to a new study released by Texas A&M University. The price of anhydrous ammonia – one type of nitrogen fertilizer – rose an average of $688 per ton from late 2020 through October of 2021, according to the study, which also concludes that tariffs would push prices higher.
The International Trade Commission ruled last summer that imports of urea ammonium nitrate solutions (UAN) – another nitrogen fertilizer – from Russia and Trinidad and Tobago are injuring domestic producers. The decision meant the Commerce Department would continue to conduct a separate investigation into whether Russia and Trinidad and Tobago are unfairly subsidizing exports of the fertilizer.
The investigations could result in the U.S. slapping countervailing duties on UAN imports.
“The proposed tariffs will create shortages and drive our costs up even higher,” National Corn Growers Association President Chris Edgington said on an NCGA webinar Wednesday. “They will add insult to injury and impose a financial hardship on family farms.”
The Texas A&M study, commissioned by 21 state corn farmer groups, predicts that the tariffs on UAN imports would translate to a price increase of $102.25 per ton of nitrogen for all farmers, or an additional $12.78 per acre.
Texas Panhandle corn farmer Dee Vaughan says his nitrogen costs in 2020 were $89.13 per acre, but that jumped to $110.17 per acre in 2021. Vaughan, who spoke on the webinar, said he’s already bought much of his nitrogen for the 2022 crop, and it's looking like he’ll spend about $292 per acre.
“That is a huge 264% increase in the cost of nitrogen in just over two years’ time,” said Vaughan.
A common explanation for why nitrogen costs have risen so quickly is that they follow the price of natural gas, but that is wrong, according to Joe Outlaw, the primary author of the study. Instead, the main factor is the price of corn.
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“The fact that the price of anhydrous ammonia in this country has followed the price of corn so closely tells me that there’s a lot of planning that goes on and pricing decisions, but … we can kind of put to bed the connection between natural gas and ammonia at this point.”
Natural gas makes up 70% to 90% of the cost of nitrogen fertilizer, but higher natural gas prices only account for 15% of the recent spike in the cost of anhydrous ammonia, according to the study, which also notes the increasing consolidation of fertilizer production in the U.S. and the influence of those companies on prices.
Increased demand for nitrogen fertilizer from corn growers could be one factor in the relationship between corn and nitrogen fertilizer prices, but the correlation could also be “due to the exercise of market power by nitrogen product manufacturers and extraction of economic rents from corn producers,” according to the study. In other words, fertilizer companies know they can charge more, so they do.
The study notes that four companies produce about 75% of the nitrogen fertilizer consumed domestically. One of them is Illinois-based CF Industries Holdings Inc., which originally petitioned the ITC and Commerce Department to investigate UAN imports from Russia and Trinidad and Tobago.
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