Major Nutrient OutlookThat’s the title of Josh Vollmar’s May 8 NPK Market Update online mini-lecture. Vollmar is director of Commodities and Risk for Anderson Fertilizers. In this verbal newsletter, Vollmar explained the status of the global fertilizer industry, placing emphasis on how much those commodity prices have changed (mostly downward) in the last 12 months.

He also addressed the effects “just-in-time” (last minute) purchases have on fertilizer prices and availability for spring 2023. Vollmar pointed out the ripple effect it has on the ag industry as a whole. Before I tap into his explanation of why those changes have occurred, I’ll review the mechanics of conventional (non-organic) fertilizer manufacture.

The process starts with natural gas (methane; chemically, CH4). Methane and water are combined and subjected to high temperature and extreme pressure. The resulting chemical reaction yields carbon dioxide (CO2) and hydrogen (H) gas. Earth’s atmosphere is 78% nitrogen (N), which is removed from the air by fractional distillation. This N is blended with the isolated H, also under very high pressure and temperature conditions. Thus blended, one N and three Hs react to become one anhydrous ammonia (NH3) molecule.

Add the right amount of CO2 to the NH3 molecule – along with high temperature and pressure – and the result is urea. Additional chemical reactions produce three other main ingredients, namely urea/ammonium nitrate (UAN), mono-ammonium phosphate (MAP) and diammonium phosphate (DAP). Making things even more interesting, a fairly strong relationship exists, in terms of supply/demand, between natural gas, drilled petroleum and corn-derived alcohol.

Conventional phosphate fertilizer production starts with mined rock phosphate ore being chemically treated with sulfuric acid, a reaction yielding phosphoric acid and waste slag. The phosphoric acid is treated with ammonia, a reaction which yields MAP. When MAP is treated with more ammonia, DAP results. The fertilizer analysis of MAP is 11-52-0 (N-P-K), and the analysis of DAP is 18-46-0. Since ammonia is made from natural gas – along with CO2, atmospheric N and water – CH4 costs greatly influence costs of all commercial N fertilizer, as well as P fertilizers. With chemical fertilizers, there is basically no phosphate manufacturing independent of natural gas.

During the early stages of the Ukraine war 15 months ago, Putin tried to freeze out his enemies by curtailing shipments of natural gas to their country. Expressed simply, friendly nations diverted sources of their natural gas to Ukraine, helping lessen the humanitarian trauma associated with shivering. But the price of natural gas kept going up due to this mostly manmade energy supply/demand imbalance.

In addition to this eastern European mess, widespread drought – particularly in our own Mississippi Basin – seriously complicated Heartland USA logistics. This snafu proved particularly painful in the logistics of getting fertilizer ingredients to their final upriver destinations in a timely fashion for growing season 2022. This scenario placed seemingly non-stop upward price pressure on plant food.

In Vollmar’s online presentation, we learn that ammonia prices have dropped significantly since April 2022. Thirteen months ago, NH3 prices for Midwest (Eastern Corn Belt) terminals stood at about $1,480/short ton compared to a May 8, 2023 commodity price of $345/short ton. According to Vollmar, these low prices aren’t likely to increase, for a number of reasons.

Quoting him, “There’s no reason to stick out your neck to buy ammonia until it’s absolutely necessary (for side-dressing). The main reason that ammonia prices continue to slide is lower input costs. So, U.S. natural gas prices tend to hover around that $2/mmbtu range. That’s cheap, because crude oil prices have declined steadily over the past year, but there’s still sufficient U.S. domestic oil drilling activity. Natural gas, in many cases, is seen as a byproduct of the oil drilling process. The alternative to selling it is to flare it off, so oil producers are at least getting something for their natural gas.”

He stressed that even with these low prices, in much of Europe it’s cheaper to import ammonia than to produce it.

Then he examined urea, commenting that this commodity “saw a short squeeze happen when buyers kicked in and swooped up the available tonnage, which led to a $150 price increase per short ton in NOLA (Port of New Orleans); that was a 50% price increase in less than a month (from March to April). Urea is definitely a volatile commodity, and while it is the most widely traded fertilizer commodity in the world, it still behaves erratically.”

Addressing the price behavior of UAN (blend of urea and ammonium nitrate), Vollmar described a European Energy Crisis (EEC) cycle running from January 2021 – January 2023. He cited values from the Cincinnati terminal on the Ohio River, a point servicing the Northeast. At the start of that cycle UAN price was approximately $300/short ton, and that’s where it finished off 24 months later.

Halfway between those dates (January 2022), UAN peaked at $700/short ton, then dropped to $450 in July 2022. This drop was followed by a smaller peak of $600/short ton in October 2022. That peak was followed by a drop back down to $300, marking the end of the EECs cycle.

Fertilizer gurus generally accept the strong relationship between natural gas demand and the price of UAN. January 2022 was beset with two very influential energy-demanding factors: first, Europe was plodding its way through a colder than average winter; second, Putin was about to mobilize his attack on Ukraine. The trough of July 2022 reflected more normal demand for both natural gas and UAN. The October 2022 peak reflected worry about another cold winter, intensified by the Ukraine conflict. The winter turned out not to be so bad, in terms of home heating needs. From October 2022 to January 2023, global demand for natural gas dropped relative to supply.

Vollmar pointed out that if this growing season warms up rapidly in major corn growing regions, particularly the U.S. Corn Belt, such will apply upward price pressure on UAN as well as its component products.