Economists at Texas A&M University recently completed two studies on impacts of surging fertilizer prices for farms. Not surprisingly, the studies found an increase/decrease in crop returns often coincides with an increase/decrease in input expenditures. But when crop returns decline, fertilizer expenditures tend to decline less. The studies found:
- Based on currently available data, the increase in nitrogen prices appears to be 81% higher for the 2022 crop than previous estimates. An average increase in nitrogen costs of $52.07 per acre was noted across the 46 corn farms the economists studied. This would translate into roughly 32¢ per bushel that corn farmers would need from the market or government to offset the higher nitrogen price.
- The suggestion that recent increases in the price of natural gas are the primary reason for the higher prices of nitrogen products is highly suspect. For example, the price of anhydrous increased $688 per ton from the end of 2020 through the end of October 2021. However, the increase in the value of the embedded natural gas accounts for only $102 (or 15%) of that increase. Once the value of natural gas in a ton of anhydrous has been subtracted from the price, the residual tends to closely track the price of corn, albeit on different scales. This close correspondence could be due to increased demand for nitrogen products as corn prices increase, or could be due to the exercise of market power by nitrogen product manufacturers and extraction of economic rents from corn producers.
- The largest whole-farm impact would fall on farms at an average of $128,000 per farm and the largest per-acre impact would be on rice farms at $62.04 per acre.
The economists note: “Given the farm safety net is not designed to address rapidly rising costs of production, there are growing concerns in the countryside about the need for additional assistance.” Will lawmakers and farm groups use these reports to get Congress to provide additional aid?
