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December
27, 2022
By By
Monica Cordero, Investigate Midwest/Report for America
2022 Fertilizer Company Profits Soared
Farmers Endured a Rough Year, but Fertilizer
Companies Cashed In
Lance Lillibridge, a farmer
in east-central Iowa, knows farming's ups and downs. He has been in
this business since he was "knee-high to a grasshopper" and is the
first of a family of farmers to own his land. But he said the sharp
increase in fertilizer prices this year has put him in a challenging
position.
"It's very gut-wrenching," he said. "It's very difficult to be
optimistic about the future because these prices are so high."
This year's drastic increase in fertilizer prices has hit farmers'
pockets, and many have opted to buy less fertilizer and look for other
alternatives to nourish the soil.
Lance Lillibridge, a farmer in central Iowa, said it is difficult
to pencil out fertilizer costs for a 2023 crop. Right now, he
can't even lock in a price for spring fertilizer.
(Photo by Emily Kestel, Investigate Midwest)
However, fertilizer manufacturers have largely escaped unscathed: The
high prices -- which have soared past inflation -- have cushioned
their bottom lines from any decline in sales, according to financial
reports.
This year, giant fertilizer companies hauled in hundreds of millions
in net earnings. The rise in profits represents massive percentage
increases since last year. One major producer's earnings jumped more
than 1,000% in the first nine months of 2022 than in the same time
period last year.
COMPANY PROFITS
Although the rise in fertilizer prices has hurt farmers, it has led
fertilizer manufacturers to record triple-digit profit increases for
most of this year, according to reports that Mosaic and CF Industries
filed with the U.S. Securities and Exchange Commission and the
Canadian company Nutrien publishes on its website.
For example, Mosaic's net earnings totaled $842 million in the first
nine months of 2022, representing an increase in profits of 217% over
the same amount of time last year. A company's net earnings indicate
how much money it made in a given period after factoring in expenses,
like operating costs.
Mosaic did not return requests for comment.
CF Industries and Nutrien also saw windfalls. CF Industries reported
more than $2.49 billion over the first nine months of 2022 -- a 1,075%
bump compared to the same amount of time last year.
When asked about its earnings, a CF industries spokesperson pointed to
a post on its website. The post said prices for nitrogen fertilizer,
the company's focus, are determined by high natural gas prices.
"European natural gas prices have hit record highs in early March 2022
due to the uncertainty created by the invasion of Ukraine by Russia,
which is a major supplier of natural gas to Europe" the post reads in
part. "This affects prices worldwide."
Nutrien also pointed to a post on its website explaining key drivers
of fertilizer costs, including natural gas prices. The company's
president and CEO, Ken Seitz, touted his company's high earnings in a
news release: "Nutrien has delivered record earnings in 2022 due to
the strength of agriculture fundamentals, higher fertilizer prices and
excellent retail performance."
In their reports, the companies mentioned that high fertilizer prices
have caused farmers to buy less fertilizer. However, this drop in
sales does not affect their earnings growth.
"They make excuses for price gouging," said Joe Maxwell, president of
Farm Action and former Democratic lieutenant governor of Missouri.
"They have blamed high natural gas prices. They blamed hurricanes in
Louisiana and Florida, and they blamed COVID... The truth is that
they're exhibiting monopolistic practices within the marketplace."
FARMER FRUSTRATIONS
Lillibridge's 2,500-acre farm in Vinton, a town in Benton County,
mostly grows corn.
Although corn has sold at higher over the last two years and grain
prices right now remain stronger rolling into 2023, Lillibridge said
it's "very frustrating as a farmer" right now. Farmers could be paying
hundreds of thousands more for fertilizer, he said.
"It's difficult to be able to pencil this out," he said of planning
the year ahead. "Right now, I can't even get a price on fertilizer for
spring. So how do I make any decisions?"
Runoff from fertilizer also can have disastrous downstream effects. It
exacerbates the "dead zone" -- an area where fish can no longer live
-- in the Gulf of Mexico, and it contaminates drinking water.
Midwestern farmers spent nearly $4 out of every $10 of the cost of
growing corn on fertilizer in 2021, according to the most recent data
of the USDA's Commodity Costs and Return. For soybeans, fertilizers
account for less than $2 out of $10 of operating costs. USDA data on
production expenses shows fertilizer overall was 32% higher in 2022
than 2021.
"The increase in fertilizer prices has probably been the No. 1 issue"
for farmers, said Nicholas Paulson, professor in agricultural
economics at the University of Illinois at Urbana-Champaign.
Paulson said fertilizer use is significant for soybeans, but corn is
more dependent on fertilizers -- especially nitrogen fertilizer, one
of the main types of fertilizer, along with phosphate and potassium.
Fertilizer prices have risen for the past two years but reached record
highs last spring. Multiple factors have driven the increase.
Russia's invasion of Ukraine (both countries are major producers), the
subsequent economic sanctions and disruptions to Black Sea trade
routes have further increased trade costs and uncertainty for Russian
and Belarusian exports.
While not as high as in the spring, fertilizer costs are significantly
higher than a year ago and remain higher than in 2019.
This increase is considerably higher than for other prices across the
economy. From the third quarter of 2019 to the same period this year,
the average price of two of the most widely used types of fertilizer,
diammonium phosphate (DAP) and potash, doubled in cost, according to
an analysis of DTN/Progressive Farmer fertilizer price data by
Investigative Midwest. In contrast, overall inflation in that period
was 20%.
But the most significant price increase over that same time period has
been for anhydrous ammonia, an effective and widely used nitrogen
fertilizer. The price of anhydrous ammonia fertilizer increased by
152%.
"This is not normal," said Lillibridge, who also is a board member for
the Iowa Corn Growers Association. "In years past, we've had a pretty
good idea what we could buy fertilizer for in the fall and what we
could buy it for in the spring."
Lillibridge said that's a burden for farmers because they have had to
triple their fertilizer budget. If they had planned to invest
$400,000, that means they now have to spend $1.2 million, he
explained.
"I hear more of my farmer friends say, 'I don't even know why I do
this anymore,'" Lillibridge said.
The price of natural gas, which is used in nitrogen-based fertilizers
production, affects the cost, as do farmers' returns. When farmers
make more money, fertilizer companies charge more, said agricultural
economist Carl Zulauf, professor emeritus at The Ohio State
University.
INDUSTRY CONCENTRATION
Dennis Friest, Iowa Corn Growers Association president, attributes
price increases to a concentrated fertilizer market made up of a few
giant players.
"We as farmers feel very offended that just because corn prices went
up, the fertilizer prices went up," Friest said. "They have total
control over whatever price they charge."
Two companies supply most of North America's potash fertilizers, while
four supply 75% of U.S. nitrogen fertilizers, according to a March
2022 U.S. Department of Agriculture report.
The report (https://www.federalregister.gov/…)
even warned of concentration: "These companies' possession of scarce
resources, often in other countries, and control over critical
production, transportation, and distribution channels raises
heightened risks relating to concentration and competition," it read.
Nutrien, a Canadian company formed through the January 2018 merger
between PotashCorp and Agrium, and Mosaic, based in Florida, dominate
the potassium fertilizer market.
Meanwhile, the major players operating in the nitrogen fertilizer
market included CF Industries, an Illinois-based company; Nutrien;
Mosaic; and the Norwegian chemical company Yara.
Wes Shoemyer, a former state senator in Missouri and a corn farmer who
said the high prices made him find a biological alternative to
fertilizer from a company named Pivot Bio, said he thinks the Biden
administration should investigate the concentrated market.
"We have to enforce the antitrust rules," he said. "We're seeing this
administration become more aggressive on many antitrust laws."
-- Monica Cordero is a corps member with Report for America, a
national service program that places journalists into local newsrooms.
**
Editor's Note: This story is a product of the Mississippi River Basin
Ag & Water Desk, an editorially independent reporting network based at
the University of Missouri School of Journalism in partnership with
Report For America and the Society of Environmental Journalists,
funded by the Walton Family Foundation.
DTN/Progressive Farmer serves as a newsroom partner for
the Ag & Water Desk. DTN Ag Policy Editor Chris Clayton serves as an
expert journalist to help support the reporters and editors who
collaborate on the project. To learn more about the project, visit https://agwaterdesk.org/….
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