Despite fertilizer production curtailments earlier this year, fertilizer prices have remained high while corn production costs have dropped. Many are asking why. It appears that the drive to plant more corn this year is pushing prices up.
“A combination of abnormally high corn prices and increased plantings is keeping plant-food costs elevated. Fertilizer products ‘have been more tied to crop prices than lower natural gas price,’” Jeffrey Stafford, a Morningstar analyst in Chicago, told Barrons.com. “So, producers have been able to capture that wide margin.”
The biggest variable cost in producing fertilizer is natural gas, which has seen its price collapse. However, despite its drop, fertilizer prices have not carried that through on price. Anhydrous ammonia prices are near $700 a ton. Last year, prices were closer to $800 per ton. However, if the drop in input costs were passed through, farmers would be paying around $231 a ton for nitrogen fertilizer, according to Kevin Dhuyvetter, a farm management specialist at Kansas State University.
The current market conditions continue to favor the fertilizer producers.
“A lot of people have planted corn, and need nitrogen, so the fertilizer makers have the upper hand,” Dhuyvetter told Barrons.com.
As long as farmers are willing to pay more for the fertilizer to get bigger revenues for higher yields, prices for fertilizer will remain high. However, Stafford reminds growers that eventually natural gas prices will drop, increasing pressure on fertilizer margins for manufacturers.