Tariffs Could Raise Fertilizer Prices

OMAHA (DTN) -- Possible nitrogen tariffs could push historically high nitrogen prices even higher for American farmers, according to a new Texas A&M study released Wednesday. The study, commissioned by 21 state corn organizations, looked at the economic impact of nitrogen prices on U.S. corn producers.

Producers have good reasons to be concerned about the pending tariffs on nitrogen fertilizer imports, according to the National Corn Growers Association (NCGA). The report also details how fertilizer prices had a correlation with the cost of natural gas, and how they follow corn prices higher or lower.

MORE FERTILIZER TRADE ISSUES

In August 2021, the United States International Trade Commission (USITC) determined there was "a reasonable indication" that the U.S. fertilizer industry was being injured by imports of urea ammonium nitrate solutions (UAN) from Russia and Trinidad and Tobago. (See https://www.usitc.gov/…) The government agency at the time voted to continue the investigation of imported UAN solutions.

Then, on Nov. 30, 2021, CF Industries welcomed the preliminary determinations that UAN imports from Russia are unfairly subsidized at rates ranging from 9.66% to 9.84%, while UAN imports from Trinidad and Tobago are unfairly subsidized at a rate of 1.83%. (See https://www.cfindustries.com/…) The USITC is expected to make final determinations in the summer of 2022.

Chris Edgington, a St. Ansgar, Iowa, farmer and NCGA president, said in a news conference Wednesday morning his group is calling on CF Industries to refrain from pushing for these tariffs, as high nutrient prices are weighing heavily on producers' bottom lines.

"Our request is simple," Edgington said. "We're just asking these companies to keep us out of their trade disputes and they do everything possible to keep their products available and affordable for family farms."

Edgington said NCGA has been discussing the issue with CF Industries. The two groups talked, but so far, NCGA hasn't been able to convince the fertilizer company to not pursue tariffs, he said.

He was asked about congressional help with higher fertilizer prices. Edgington said NCGA has already reached out to various representatives and senators.

STUDY: TARIFFS TO INCREASE N PRICES

The Texas A&M study showed any import tax on nitrogen fertilizer would raise prices for both domestically produced and imported fertilizer. Based on fertilizer prices as of the end of October 2021, a 19% tax on imported anhydrous ammonia would increase prices paid by farmers by $194 per ton, the study said. (See (https://dt176nijwh14e.cloudfront.net/…)

DTN tracks average retail fertilizer prices on a weekly basis, and the anhydrous price for the first week of January 2022 was at $1,430 per ton, an all-time high for our data. With Texas A&M's estimate, the anhydrous price would jump to $1,624 per ton.

Joe Outlaw, Texas A&M professor and Extension economist, said the study showed a distinct decoupling in the fertilizer prices beginning in 2010.

Before this time, fertilizer prices generally tracked along with the price of natural gas, a basic ingredient of most fertilizers. University of California-Berkeley research showed that before 2010, changes in the natural gas price were passed through to the anhydrous prices 80% of the time, the Texas A&M study said.

Since 2010, however, fertilizer prices have moved in-line with corn prices.

"Normally, we need to build a model first to find these things, but our modeler said you could clearly see this change, and then we just needed the proof," Outlaw said.

The study also pointed out the dramatic rise in retail fertilizer prices in recent years. Retail fertilizer prices have steadily risen since December 2020.

Representative farm analysis from Texas A&M Agricultural and Food Policy Center (AFPC) showed an average increase in nitrogen costs of $52.07 per acre across the 46 farms in the study. This would translate to farmers needing about $0.32 per bushel more from the market, according to the report.

PRODUCERS SEE FERTILIZER COSTS RISE

Dee Vaughan, a farmer from Dumas, Texas, said during the news conference the massive increase in fertilizer costs is an important issue for farmers. He said he can't grow high-yielding crops without nutrients.

Vaughan said his 2021 fertilizer cost for his corn crop was $142.43 per acre, with $110.17 per acre being nitrogen costs. His 2022 fertilizer costs are $291.94 per acre with $235.76 per acre being nitrogen alone.

"This is a huge 264% increase in the cost of nitrogen and an increase of 241% for my total fertilizer bill," Vaughan said.

Jay Schutte, a farmer from Audrain County, Missouri, echoed Vaughan's sentiments. The fact that four fertilizer companies control 75% of the nitrogen is bad news for U.S. farmers, he said.

Schutte said he paid about $488 per ton for anhydrous for his corn crop in 2021. For the 2022 crop, his anhydrous cost jumped to $1,282 per ton.

"This is just ridiculous," Schutte said.

These increases in fertilizer costs affect farmers but also the economy and consumers. With all the supply-chain issues lingering in 2022, rising fertilizer prices could set the stage for a possible corn shortage if farmers cut back on fertilizer in the 2022 growing season, he said.

Russ Quinn can be reached at russ.quinn@dtn.com

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