In our weekly series From the Furrow, host Mike McGinnis and fellow grain geeks shed light on current market conditions and how grain producers can take action to manage their risk.

This week, Mike is joined Veronica Nigh, Senior Economist with The Fertilizer Institute. How are fertilizer prices looking heading into 2025? Why is phosphate so expensive? Are producers likely to pay less for potash, urea or DAP? Mike and Veronica discuss those topics and a whole lot more.

Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].

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00;00;16;19 – 00;00;36;17

Hello and welcome to From the Furrow, brought to you by Ever AG Insights. Each week we talk with subject matter experts on news and topics affecting the grain markets. I’m your host, Mike McGuinness, and today we get started with a review of the markets. It’s Tuesday, September 24th, 2024. The new crop December corn futures contract is up three quarters of a cent at 414 per bushel.

00;00;36;18 – 00;01;01;07

Meanwhile, November soybeans are up 13.5 cents at 1053. And for our discussion coming up, it might be helpful to note that soybeans are up $1 per bushel over the last 30 days. Meanwhile, corn has jumped $0.28 since the 24th of August. Turning to our guest this week, it’s our privilege to have Veronica Nye, senior economist with the Fertilizer Institute, and we want to thank Veronica for joining us today.

00;01;01;08 – 00;01;04;00

Veronica, thanks very much for having me on the program, I appreciate it.

00;01;04;02 – 00;01;25;28

You bet. We’re going to talk about the fertilizer market today. And of course, this is a time when farmers are getting set to either book or apply or do both their fertilizer for the fall, or maybe buy it this fall and will apply it in the spring. Those are the two times that are popular for farmers to do so, and some of the decision making that goes into that when they do it, you know, goes for farm to farm, producer to producer.

00;01;25;28 – 00;01;51;07

But currently the topic here with the fertilizer market is declining. Grain prices are making fertilizers less affordable as the summer fill programs end. And then we look forward to the fall and the cost reset for the fall. The question to you, Veronica, is, do you see this as a theme for this year’s fertilizer purchasing season? And though less affordable, all but a few fertilizers are down from a year ago, and most are down from a month ago.

00;01;51;09 – 00;02;20;18

Well, you know, certainly we’re obviously very concerned about our customers ability to afford all of their inputs, fertilizer included. You know, USDA just two weeks ago told us that net farm income, when adjusted for inflation, is down 26% compared to 2022, is high. So, you know, that’s obviously something that our members have a lot of concern about. And, you know, just a couple of weeks ago, again, you know, we had the Bankers Association coming in and saying, hey, on Capitol Hill, they’re concerned about the fact that the farm bill hasn’t been reauthorized.

00;02;20;18 – 00;02;41;19

And the concern that folks aren’t able to get operating loans for the next year. So when we look at overall fertilizer demand in the United States, about 70, 75% of nutrient uses associated with cleanings of corn, soybeans, wheat and cotton. So obviously, when those products are experiencing a significant downturn, that has a significant impact on demand in the US.

00;02;41;19 – 00;03;06;23

And then I think, you know, overall, when we think about fertilizer, this has been something that we want to make sure you talk about on a regular basis is that 90% of nutrient demand is outside of the United States. So as we’re thinking about these global products, you know, corn, beans, wheat, cotton, obviously all very global products, we have to think about, not just what’s going on for fertilizer demand in the US, but also fertilizer demand globally.

00;03;06;25 – 00;03;26;05

I think it’s a great point. I agree that I don’t think that a lot of people consider that fact that it is a global market, and you think about that when they talk about the crop production, but not necessarily with fertilizer. So a good point. Now phosphate affordability is as low as it’s been since 2008. In other words, to put it another way, it’s the most expensive there’s been for quite some time.

00;03;26;05 – 00;03;28;28

What’s driving the phosphate price so high?

00;03;29;00 – 00;03;50;18

You know, phosphates continue to be a frustrating component of the total fertilizer picture. You know, I think again, folks are going to get tired of hearing me talk about countries that aren’t the United States. But when we look at phosphate, we have to continue to consider that China’s continued export restrictions on phosphates, particularly DAP and limited global capacity additions, are challenging in 2024.

00;03;50;19 – 00;04;17;05

We also see a number of fertilizer producers, both in the US and globally, choosing not to produce DAP in particular, but instead channeling those phosphates into higher value add fertilizer products you know, that benefit growers and other ways. We’re seeing, you know, a couple of challenges on the phosphate market with a lack of additional capacity and then production being funneled really outside of those products that particularly in the US, we like to use.

00;04;17;05 – 00;04;31;11

Potash prices in September anyway, are down 8% from a month ago. DAP, Mapp, urea and UAN are all lower in September than a month ago. Are we seeing the beginning of a fall trend here, or is this move lower some sort of a Hedvig?

00;04;31;13 – 00;04;59;04

Well, you know, we tend not to comment on prices at TFI, but, you know, as I look at total demand for all three of the major nutrients, both in the US and globally, I think it’s going to be a challenging 2025, our calendar year. You know, that’s at least what our members are expecting, that as mentioned, the affordability is declining in the US, around the world, and that certainly makes its way into the demand side when you have lower demand for products, obviously prices come down.

00;04;59;04 – 00;05;12;06

So when we look at the total picture on the supply and demand side on fertilizers, supply looks pretty good. Demand is starting to soften fundamentally. That would suggest that the direction of prices into the next six months, 12 months.

00;05;12;08 – 00;05;20;15

Let’s move on to anhydrous. Those prices have moved higher in September versus a month ago. What are the supply demand fundamentals for in hydrous heading into the fall?

00;05;20;18 – 00;05;42;00

You know, one of the unique things about TFP as an organization is that the vast majority of producers of fertilizer in the United States as members, and they have voluntarily provide for us their production data. And what I can say from the nitrogen standpoint is that particularly in the last let’s say, four months, we’ve been a bit challenged on the production side on nitrogen.

00;05;42;00 – 00;06;03;20

We had a couple of facilities that had unexpected shutdowns. Those facilities are coming back online now, but it doesn’t take long for that to be felt in the marketplace. When you’re looking at a 100,000 short ton difference from month to month. So the other big thing, of course, on nitrogen is that the significant role that natural gas plays in the production of nitrogen fertilizers.

00;06;03;24 – 00;06;20;29

And that was my next question. Natural gas prices are falling. And the experts or what I’m reading anyway, of those folks that follow this market, they expect it to remain low for the next two years. I supply seems to be driving the prices lower. That said, natural gas, as you just mentioned, is the main raw material for making fertilizer.

00;06;21;00 – 00;06;22;15

Discuss that relationship there if you would.

00;06;22;21 – 00;06;48;06

Yeah. So as you said, natural gas really matters as a key portion of the production of ammonia, which is in turn the building block for all nitrogen fertilizers, natural gas is about 70 to 90% of the cost when you’re producing ammonia. So as goes the natural gas market, oftentimes as goes nitrogen fertilizer. So yes, certainly it would appear following those markets that we’re in for a couple of years of better natural gas prices.

00;06;48;06 – 00;07;16;12

I will remind you all that the last few years have been wild. Is that a good technical term? You know, back in 2019, natural price on Henry Hub was about $2 per million BTU in towards the end of 2022, we got all the way up to $14.5. Today we’ve gotten back to that $2 per million BTU price and hoping not only for it to stay around that price level, but for some lack of variability, some stability in that market will help fertilizer prices.

00;07;16;12 – 00;07;29;11

It’s going to help a lot of sense, but makes a lot of sense when we think about things like nitrogen fertilizers. But also, you know, when you think of the way that ammonia prices make their way into Mop and DAP, right? It’s not an insignificant contributor to those prices either.

00;07;29;11 – 00;07;41;26

TFI has worked hard to educate commodity groups, farmer organizations and others the past couple of years about the many issues impacting fertilizer markets and what influences the prices. You just mentioned a few. What has been the message?

00;07;41;29 – 00;08;03;18

You know, I think I should pause here for just a moment to say that prior to coming to tie at the end of 2023, I spent 12 years with American Farm Bureau Federation in their econ shop. You know, I’m very sensitive to and familiar with the producer organizations and the challenges of, frankly, just growing a crop every year and know that growers have really felt the whip of the market in the last few years.

00;08;03;18 – 00;08;21;29

And, you know, I remember sitting in meetings of TFI just a few years ago back in 21, 22. And as they were explaining to me, you know, all of the different components, and I realized and I’m continuing to learn all the things that go into producing fertilizers like nitrogen fertilizer. You can make that from about anything, right? And you can just pull it from the air.

00;08;21;29 – 00;08;38;06

But it takes about 3 to $5 million to build a plant. And 3 to 5 years to get an ammonia plant up. And doing so, I guess, might take away from the nitrogen side. And what I want folks to keep in mind is it takes a good amount of time and a good amount of money to bring a new production facility online.

00;08;38;06 – 00;08;55;29

And, you know, about 90% of global production of nitrogen fertilizers is consumed in country. So wherever it’s produced is where it’s consumed. So we’re all chasing about 10%. When the market gets tight, we’re chasing about 10% of production on phosphates. You know, that’s a product that has to be mined. If you’ve got it, you’ve got it. If you don’t, you don’t.

00;08;55;29 – 00;09;14;14

And about 44% of global production is exported, and it’s really concentrated in a few countries. And just because you produce it doesn’t mean you export it, which has been a fun element of the fertilizer markets in the last few years. Think about on the phosphate side, the fact that China, who had been 21% of global exports of phosphates, has shut off exports.

00;09;14;14 – 00;09;35;23

And then when you look on the potash side, 75% of all production is exported. But again, if you’ve got that mineral, you’ve got it. If you don’t, you don’t. And so, you know, 70%, 65, 70% of global exports come out of just two countries, Canada and Russia. So as we think about all of the with of what’s been going on in some of those major exporting countries, it really drives home.

00;09;35;23 – 00;09;51;01

And what we’ve been trying to talk with grower groups about is there’s some that’s under control and there’s some things that are under our control, and we need to work together, if we can, to find solutions to help minimize the impact of those areas where we currently don’t have control.

00;09;51;04 – 00;09;58;02

And finally, the so what segment I like this because it really zeroes in on what we’ve been talking about. What should producers take away from our talk here?

00;09;58;02 – 00;10;27;16

Well, you know, the first thing is how much of global nutrient use is outside of the US. And thinking about how much that impacts the fact, not just U.S. production of fertilizer, but global production of fertilizer. And, you know, the industry plans on about 2% growth in fertilizer use year over year. That follows about what we see on Planet Acres and in total usage over the last few years, we’ve had vagaries in the market on the demand side that went from 5% plus to 4% negative over the course of, you know, two years.

00;10;27;16 – 00;10;49;23

So, frankly, it’s taken the industry a while to get back to a place of normal. And I would say that global fertilizer production, as we’re thinking about what natural gas prices are looking like, both in the US and in the EU, when we think about business sort of getting back to normal in a post-Covid and a dealing with Russia Ukraine situation as those things are a bit normalizing.

00;10;49;23 – 00;11;14;13

You know, I think we’re getting closer to a place where fertilizer markets look more like the markets that we were used to of years ago, where there weren’t this huge change in prices throughout the growing season. You know, I was just looking back in 2017, we would look at prices changing on phosphates and potash, maybe 4% over a growing year, and how much that variation has picked up over the last few years.

00;11;14;13 – 00;11;33;07

And we’re starting to see that range of price difference starting to narrow again. So we know fertilizer prices are always going to be more than what growers are want to pay. Nobody wants to pay more for inputs. I think some of that variation that has been so incredibly hard to account for from a grower perspective, from an ag retailer perspective, is starting to mitigate.

00;11;33;07 – 00;11;36;09

Unless, of course, you know, we welcome black swans back into our markets.

00;11;36;14 – 00;11;45;22

Well, Veronica, that’s been a great conversation. And this has really helped a lot of folks understand. And thanks for breaking down each fertilizer in this category. And given your outlook we appreciate it.

00;11;45;23 – 00;11;56;15

My pleasure. We certainly want to be a resource. If folks want to call and yell, I want to hear it. Do you want to have us come and talk at a grower meeting? We’d love to do it. Please do consider as a resource we have folks viewers in that way.

00;11;56;16 – 00;12;13;29

Veronica. Nice, senior economist with the Fertilizer Institute. We’d like to thank her again for her insight on the fertilizer market. And if you’ve enjoyed listening from The Furrow, be sure to tell a friend or to and subscribe to us wherever you listen to your podcast. Thank you to the Ever Egg Insights Crew for their work on today’s show.

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