A Nitrogen Shortage is Brewing, So What Will it Take to Cure The World's Fertilizer Deficiency?

Just this week, CF Industries said soaring natural gas prices is causing a shortage of nitrogen fertilizer. With nitrogen fertilizer prices already racing higher, as well as the possibility of a shortage around the globe, CF Industries says the world could see a reduction in global crop yields next year. 

While the projection paints a dire outlook, current nitrogen prices also portray a bleak scenario.

Stone X Group says according to their data, the Midwest wholesale anhydrous ammonia nitrogen prices have risen approximately $434 since Sept. 10. That marks a 65% increase in just over a month, or $72 a week.

While farmers can cut back on some inputs, nitrogen is a necessity in growing corn, but one agricultural economist says it’s not a definite that fertilizer prices will continue to race higher.

“There's plenty of time for new information to enter these things,” says Cory Walters, Agricultural Economist with the University of Nebraska. “We usually focus on the output price side, it is a year to focus on the input price and how to manage those things. So, we have to get back to our fundamentals and really watch how we how we enter in walk through this.

So, what would need to happen to tame input prices like nitrogen fertilizer? The past few months have produced several Black Swan events in the fertilizer market, but a Black Swan could also cure the price spike.

“Right now, we have an almost a perfect storm of high energy prices, China cutting its production because of higher energy prices, as well. In Europe, they're suffering through very high gas prices. Then we have supply disruptions in the U.S.,” says John Beghin, Agricultural Economist, University of Nebraska.

As painful as input prices are for U.S. farmers, South American producers are faced with a similar dilemma. And with Brazil forced to import most of their fertilizer needs, the situation in South America may be more dire.

“Look at the lack of integration, for instance, for potassium-based fertilizer,” adds Beghin. “I mean, we have prices in the U.S. now almost $700 per metric ton and the same in Brazil, yet the Vancouver price is around $225. So yes, obviously there are supply disruptions that could be resolved and transportation issues, so those could be resolved in that sense."

While supply pressures and transportation issues could be resolved, what is the likelihood something like the energy crisis in China sees a resolution? Beghin says for any of those scenarios, a solution will take time.

“If you look at the outlook for fertilizer, the World Bank says that 2022, we won't see price increases, but price will be steady at where they are,” he says. “So, that's the outlook from the World Bank on fertilizer prices. That's not the great news, but it doesn’t say prices are increasing. But the problems won't be resolved instantly.”