“Take a look at the 2022-crop corn and soybean markets.” That’s a common line of advice coming from market-watchers on “AgriTalk.“ It’s quickly followed with: “But, input costs are going to be higher so make sure you push the pencil before getting too aggressive on 2022-crop corn marketing.”
Policy decisions have contributed to a frantic rally in natural gas prices. Europe’s phasing out of coal-fired electricity plants and inadequate solar and wind power caused the bloc to tap natural gas supplies, which dropped pre-winter inventories to low levels. Russia also squeezed European customers. Policies discouraging production in the U.S. added to supply-side stresses.
By late-September, prices had more than doubled those seen during the higher-use period of the 2020/21 winter.
WHAT USERS WILL PAY
Admittedly, it’s difficult to connect the dots between natural gas prices and nitrogen (N) prices – those markets diverged years ago when N producers discovered the price to charge is the price users are willing to pay. That’s one reason fertilizer prices now follow end-product prices (corn). But this time seems different – natural gas prices will likely have a direct impact on N prices.
By August, European natural gas prices reached levels that discouraged N production. Stockpiles needed to be refilled for the winter heating season, which diverted natural gas away from N plants.
U.S. natural gas prices had rallied sharply as well, but values were roughly one-third the European (and Asian) price. U.S. producers also weighed the consequences of storage capacity versus production.
ENTER HURRICANE IDA
At the start of September, more than half of Gulf crude oil and natural gas production was offline thanks to Hurricane Ida. Natural gas prices hit a peak in mid-September. One week of profit taking and a spike of support at $5 gave traders the first price dip to buy. By late September, one-quarter of Gulf production was still offline, and U.S. natural gas prices were at new highs.
Multiple D.C.-based attacks on fossil fuels in the past two years changed long-term business plans for global energy producers, and investment dollars left crude oil and natural gas production. Now analysts suggest it will take another doubling of natural gas prices to restart production growth.
What is being produced now will be reserved for heating. N production won’t be completely shut off, but shuttered fertilizer plants must be pulled back into production. It will take significant N bookings at higher prices or excess natural gas supplies to relight fires at fertilizer plants – and neither seems likely until summer 2022.
