Factors Leading to Increased Fertilizer Costs
|Figure 1. Winter wheat prices for western Nebraska 2001 to 2008.|
|Figure 2. Urea price at Yuzhny, Ukraine 2004 to 2008 (Source: The Market)|
March 7, 2008
In the last two years wheat prices have doubled (Figure 1) and production costs have increased significantly, with fertilizer costs more than doubling (Figure 2).
Natural gas accounts for 80% to 90% of the cost of producing anhydrous ammonia, the base material for producing all other nitrogen fertilizers. After Hurricane Katrina in 2005, natural gas prices spiked near $15 per million BTU (MMBTU) but have returned to pre-Katrina levels around $7/MMBTU, according to the U.S. Department of Energy. (Prices do rise with winter demand, however.) Increases in fertilizer prices often are blamed on increasing natural gas prices, but that doesn't represent the whole story. World prices for natural gas are much lower and range from less than $1/MMBTU in parts of the Middle East to only $2-3/MMBTU in Russia.
The major reasons for the increasing N costs are:
- the closure of 25 ammonia plants in the US since 1999 (http://www.tfi.org/publications/pricespaper.pdf 2.3 MB),
- a 14% increase in world-wide demand for fertilizer mainly in China, India and Brazil (2001 to 2006),
- the failure of the US to build major ports and unloading facilities for liquified natural gas,
- a weak US dollar and
- high domestic demand driven primarily by ethanol mandates.
Extension Soils Specialist
Extension Agricultural Economist