Some farmers begin purchasing in
the late summer of the year prior to planting, with purchases
continuing through June or July of the year of production. Timing of
nitrogen application (fall or spring), form of nitrogen application
(anhydrous ammonia or liquid solutions), and on-farm storage
capabilities play a role in a farmers’ timing of fertilizer
purchases. In Illinois, many farmers who fall apply can “book”
nitrogen at a price contingent on it being applied in the fall. Some
farmers have on-farm storage of nitrogen fertilizer, which allows
the purchase of nitrogen ahead of use.
On August 25, 2022 — near the beginning of the 2023 purchasing
season — ammonia prices were $1,153 per ton. The $1,153 level was
down considerably from the highs of over $1,600 in April through
June of 2022. From the August 2022 level of $1,152 per ton, ammonia
prices increased, reaching levels over $1,400 per ton in October
through December. Since late fall highs, price has declined to the
current $1,116 level.
AMS also reports liquid nitrogen (28%) and urea prices (see Figure
1), other important nitrogen fertilizer sources. Typically,
anhydrous ammonia is the first stage product in the production of
nitrogen fertilizer using the Haber-Bosh process, which relies on
natural gas as a major input (see farmdoc Daily, February 17,
2021). Further processing of anhydrous ammonia leads to liquid
solutions and urea. This joint process results in high correlation
among prices of the three main nitrogen fertilizers — anhydrous
ammonia, urea, and liquid nitrogen. From 2008 through 2022, the
correlation coefficient between anhydrous ammonia and liquid
nitrogen prices is .98 and between anhydrous ammonia and urea is
.95.
Since further processing is required, the additional production
costs often result in higher costs of a per useable pound of
nitrogen for liquid nitrogen and urea compared with anhydrous
ammonia. A ton of anhydrous ammonia contains 82% nitrogen, or 1,640
pounds (2,000 pounds x .82). A $1,116 per ton price of anhydrous
ammonia result is a cost per pound of nitrogen of $.68 per pound
($1,116 / 1,640 pound). Liquid nitrogen contains 28% nitrogen, and a
$532 price per ton on June 1, 2023, results in a cost of $.95 per
pound ($532 / (2,000 pounds x .28). Liquid nitrogen cost of $.95
pound per nitrogen is higher than anhydrous ammonia of $.68 per
pound. Urea is 46% nitrogen. The urea price on June 1, 2023 of $623
per ton gives a cost of $.68 per pound of nitrogen. Anhydrous
ammonia and urea have the same cost per pound of nitrogen on June 1,
2023, an unusual event.
Commentary and Outlook
Recent declines in nitrogen prices should be kept in
perspective. Current levels of nitrogen prices are still at high
levels. Except for 2022 and 2023, anhydrous ammonia prices have
rarely been above $1,000 per ton. Before 2021, the last time
anhydrous ammonia was above $1,000 was in 2008, during the aftermath
of the 2008 financial crisis. From 2009 to 2020, anhydrous ammonia
prices averaged $637 per ton, 44% lower than the current $1,116 per
ton level.
Some farmers’ per-acre nitrogen costs will be higher in 2023 than in
2022. In fall 2021, farmers could have booked nitrogen near $800 per
ton, well below prices later in 2021 and through 2022. Sub-$1,000
prices did not exist during the fertilizer pricing window for2023
production.
Attention will soon turn toward input purchases for 2024 production.
Farmers will again have opportunities to purchase nitrogen this
fall. Fundamental factors suggest an easing in nitrogen fertilizer
prices. Nitrogen prices are highly correlated with corn prices and
natural gas prices (see farmdoc
daily, June
14, 2016 and December
14, 2021). Nitrogen prices fall with declining corn prices.
Current fall bids suggest declining corn prices; however, growing
conditions this year will heavily impact corn prices. Falling
natural gas prices are typically also associated with falling
nitrogen fertilizer prices. Natural gas has declined from
above-average price levels late last year to below-average price
levels in late spring 2023. Time will tell if fertilizer prices
continue to decrease.
References
Schnitkey, G. "Anhydrous
Ammonia, Corn, and Natural Gas Prices Over Time." farmdoc
daily (6):112, Department of Agricultural and Consumer
Economics, University of Illinois at Urbana-Champaign, June 14,
2016.
Schnitkey, G., N. Paulson, C. Zulauf, K. Swanson and J. Baltz. "Nitrogen
Fertilizer Prices Above Expected Levels." farmdoc
daily (11):165, Department of Agricultural and Consumer
Economics, University of Illinois at Urbana-Champaign, December
14, 2021.
Sellars, S. and V. Nunes. "Synthetic
Nitrogen Fertilizer in the U.S." farmdoc
daily (11):24, Department of Agricultural and Consumer
Economics, University of Illinois at Urbana-Champaign, February
17, 2021.
