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Feature: High fertilizer prices weigh on US corn farmers' pockets and sentiment

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Feature: High fertilizer prices weigh on US corn farmers' pockets and sentiment

Highlights

US corn may lose 3 mil acres to soybean in 2022-23: Platts Analytics

Fertilizers prices at record levels since 2008

Higher prices may lead to lower fertilizer usage

The sky-rocketing prices of fertilizers are complicating the corn planting decisions for US farmers for the upcoming 2022-23 season with some mulling shifting to other crops, while others want to wait and watch.

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Corn being a fertilizer intensive crop offers lower returns currently compared to soybeans as fertilizer prices soar to near-record highs.

Various factors including high prices of key manufacturing component - natural gas, export restrictions from China and concerns over availability during spring are pushing up fertilizer prices.

Prices of the commonly used fertilizers are at record levels since 2008, and according to analysts, a correction is unlikely in the near term.

The current rise in prices is more supply driven unlike 2008, and prices are unlikely to "correct" quickly this time, said Joshua Linville, Director of Fertilizers at Stone X group.

According to US Department of Agriculture's Illinois production cost report Oct. 21, average prices for urea was seen at $810/mt compared to $352/mt last year and diammonium phosphate (DAP) prices were at $814/mt, almost doubling from $427/mt last year.

Liquid 28% nitrogen solution prices averaged $475/mt compared to $222/mt last year and potash prices were at $775/mt increasing almost $400/mt over last year.

"The higher fertilizer prices will increase costs, reduce recommended nitrogen application rates, and reduce the profitability of corn relative to soybeans," a University of Illinois Report said Oct. 26.

Corn losing sheen

Fertilizer prices will hurt farmer's planting decisions in the upcoming 2022-23 season.

"We are generally a corn-bean rotation; rarely do we do beans on beans, but it might be a possibility on a portion of acres if fertilizer supply is tight or prices stay outrageous," said Jonathan Mikkelson, an US-based corn and soybean farmer. "I could also see potential for some longer corn on corn acres go to beans."

According to S&P Global Platts Analytics, a 3 million acre shift away from corn to soybeans is possible in the US with both corn and soybean acreage at around 90 million acres in the MY 2022-23.

According to sources, farmers may also cut down on their usage of fertilizers in the upcoming season. "Phosphate and potash demand could feasibly drop even if acres remain high as many farmers might make the decision to reduce or skip their potash and phosphate applications at these types of prices, especially if they have kept soil levels high," Linville said.

A US-based farmer Gary S echoed the view. "We have kept our soil test requirements current and could miss [fertilizers for] one year if we had to."

To reduce spring fertilizer usage, farmers would have had to build up nutrients in their soil in past years, said Peter Meyer, head of grains and oilseed analytics at Platts Analytics. "Given that last year was a good financial year, it is possible that many farmers might have built up their fertility and will reduce some applications," he added.

Farmers that revert to their fertility bank for some of their fertilizer needs do run a risk of slightly lower yields, said Meyer, adding that it's the lack of availability of herbicide glyphosate that could have a bigger impact on yields in 2022-23.

"The price of glyphosate is another factor come spring, but without adequate weed control yields can suffer," he said.

Shrinking profits

Fertilizers will account for higher percentage of total inputs cost this coming year and quickly eat up any profit margin, meaning less margin for error, farmers said.

"Our fertilizer expenses with application have been around $140-$155 per acre the last couple years for corn ground. If we wanted to stick with similar fertilizer blend for 2022 it would likely be over $300 which is outrageous," Mikkelson said.

"If we can agree that urea, DAP, and potash are at $700/mt currently, corn prices would need to be somewhere between $9/bu and $12.5/bu for the ratio to be normal when compared to historical values," said Meyer. Whereas, the December corn futures contract opened at $5.6/bu on Oct. 28 on the Chicago Board of Trade.

"I hope corn and soybean prices do not decline or profitability will be challenging," said Gary S.

Brazil lucky for now

Brazil is usually the second-largest corn exporter after the US.

While corn producers in the US have plenty to worry following the rise in fertilizer prices, most of the Brazil farmers may not face any major issues during the second corn planting season that will begin in February 2022.

"We don't expect a significant impact. Farmers in central states have already bought most or their "safrinha" corn fertilizers by prices that, although higher than last season, are not as strong as they are right now. Southern farmers haven't bought as much as their counterparts in central states, but corn prices are good, and most farmers won't plant less corn than they were planning just because fertilizer prices are higher," said Daniele Siqueira, market analyst with Brazil-based agriculture consultancy AgRural.

Conab has forecast corn acres at record 20.865 million mt for 2021-22.

Although corn acres are likely to be unaffected by the high fertilizer prices, there are reports of supply and delivery issues.

Rural producers haven been complaining about delays and cancellations of orders for pesticides and fertilizers as prices have spiked, producer association Aprosoja-MT said in a release earlier this month.

Aprosoja urged fertilizer suppliers to honor the supply contracts and preserve the reliability of trade agreements.