Corn growers are sounding the alarm over rapidly rising fertilizer costs as they are just months away from planting the 2022 crop. They point to a Texas A&M economic analysis report indicating that additional tariffs only increase uncertainty.
Joe Outlaw, professor and extension economist in the Department of Agricultural Economics and lead author of the report, analyzed the results at the request of 21 state corn associations that paid for the report. They think this supports the idea that if tariffs are granted for nitrogen fertilizers, it will only make a bad situation worse. The National Corn Growers Association hosted a media update on January 12. Outlaw noted that input costs rise or fall for a number of reasons, but for corn growers, they tend to be tied to farm income.
As part of the study, the researchers conducted a historical analysis dating back to 1980 and found that fertilizer costs tend to rise when corn revenues rise. “Notably, these prices are rising exponentially even after factoring in natural gas prices and higher demand,” Outlaw said ahead of the NCGA update.
Until 2010, the cost of natural gas and anhydrous ammonia were linked in terms of increases and decreases, he said.
“Lately it’s been more of a disconnect,” Outlaw said. Fertilizer and anhydrous ammonia prices have been moving at the same rate as the price of corn for some time, he said, and more than in the past.
In 1995, after the cost of natural gas was subtracted, fertilizer cost about $100 a ton. Since that time, the residue has been around $600 per tonne.
One question Outlaw gets is whether maybe more fertilizer is being used, but he says the aggregate data doesn’t support the argument. Fertilizer pricing is something growers are always evaluating because of its overall impact on their bottom line.
Tariff request by CF
This comes at a time when the United States International Trade Commission in August 2021 announced an affirmative determination in the preliminary phase of its anti-dumping and countervailing duty investigation into urea and ammonium nitrate solutions in from Russia and Trinidad and Tobago. The investigation is being conducted in response to petitions filed by CF Industries Holdings, Inc.
“The ITC’s preliminary ruling is an important step toward leveling the playing field for U.S. UAN producers and their workers,” said Tony Will, President and CEO of CF Industries Holdings, Inc. , in a press release at the time of the 2021 application. “CF Industries will continue to actively participate in ongoing investigations to restore fairness to our highly competitive industry and ensure that U.S. producers of UAN remain a trusted source. fertilizer for American farmers for years to come.”
The ITC’s decision concluded that there is a reasonable indication that UAN imports from Russia and Trinidad are causing material injury to the U.S. UAN industry, Will said. Under United States trade laws, a finding of injury to the domestic industry is a prerequisite to the imposition of anti-dumping and countervailing duties. Following the ITC’s decision, the United States Department of Commerce will continue its own investigations into imports of UNA from Russia and Trinidad. The purpose of trade investigations is to determine whether imports of UAN from Russia and Trinidad are being dumped into the US market or unfairly subsidized, and if so, at what levels. If the trade’s final rulings are affirmative, the ITC will issue a final ruling on injury. If both agencies issue affirmative final rulings, which typically takes about a year, Commerce will then issue anti-dumping and countervailing orders on UANs from Russia and Trinidad, which will remain in place for at least five years.
Fertilizer prices keep rising
The results indicate that high import tariffs on nitrogen fertilizers will increase the prices of locally produced and imported fertilizers by $102 per ton, which would be in addition to the projected $600 per ton, Outlaw said. Additional costs will result in additional costs of $12.78 per acre.
Fertilizer is a major cost for corn growers, with nitrogen accounting for more than 50% of expenses, said Chris Edgington, Iowa corn grower and NCGA president. “These costs have already skyrocketed over the past year.”
Edgington said his request was for companies to stay out of the international trade war and ensure that corn growers can have fertilizer at a reasonable cost and supply for the growing season. The Texas A&M study noted that the price of a nitrogen fertilizer, known as anhydrous ammonia, rose $688 per ton, or $86,000 for a 1,000-acre corn grower, from Dec. 2020 through Oct. 31, 2021, Edgington said. . “This would create an even greater shortage in the market, leading to an even greater increase in fertilizer prices.”
The NCGA is asking CF Industries, Deerfield, Ill., a major nitrogen producer, to withdraw its request, the corn growers president said. Currently, outstanding tariffs on nitrogen fertilizers remain in place.
Farmers also noted that costs make it difficult to calculate numbers for future and upcoming growing seasons. Dee Vaughan, Dumas, Texas, noted the importance of fertilizers in producing high yielding crops to feed the world and that requires affordable fertilizers to provide the plant with the nutrients it needs. “We (farmers) are not adding more cropland,” he said, referring to the Outlaw study.
In 2020, it cost him $120.79 per acre to fertilize his corn crop, and nitrogen fertilizer expenses accounted for $89 per acre of that total. In 2021, fertilizer expenses increased, even with advance purchases, to $142.43 per acre and nitrogen fertilizer increased to $110.17 per acre of that cost.
He has already projected a fertilizer cost of $291.94 in 2022 for an acre of corn with nitrogen fertilizer accounting for $235.76 per acre of that overall fertility cost. “That’s a huge 264% increase in the cost of nitrogen in just two years and a 241% increase in my total fertilizer bill over the same period.”
There are just four companies that control 75% of the US nitrogen production industry. CF Industries, he says, is the dominant supplier.
The industry uses market power to set the price of nitrogen fertilizers and if the tariff request is granted, it will likely mean an additional cost of $102 per ton. The tariffs will also increase the domestic cost of fertilizers.
Vaughn noted a statement from Edgington that the tariffs will create shortages and drive up costs. “’They will add insult to injury and impose financial hardship on family farms.’ I totally agree with his statement.
Another grower on the call, Jay Schutte, of Benton City, Missouri, shared similar concerns about the impact on his corn farm. “It’s going to be very detrimental to my operation,” he said.
In the 2021 growing season, anhydrous ammonia cost him $488 per ton. He applied fertilizer as part of his regular practice last fall in anticipation of the 2022 harvest. The fertilizer cost him $1,282 per ton, an increase of 168%. As part of his operation, he also has forward contracts for spring spreading and that will cost him $1,480 a tonne. According to his calculations, additional tariffs would push up the cost of fertilizers to $1,674 a ton, a 243% increase over the previous year.
If countries exporting nitrogen to the United States were causing economic harm to CF Industries, he could understand the request for tariffs.
“I very seriously doubt that they are in economic harm. The American farmer certainly is. It’s going to trickle down to the consumer market.
Schutte said Patrick Westhoff, director of the University of Missouri’s Food and Agricultural Policy Research Institute, told growers at a recent NCGA conference that he thinks they will scale back applications. of fertilizer and that would result in a reduction of at least 2 bushels per acre. Economists and consumers are already worried about supply chain shortages and the Missouri farmer says tight corn supplies will only get worse next year if farmers reduce acreage or cut spending needed to increase yields.
The two main limiting factors in the corn growth cycle are rainfall, over which a grower has no control, and fertilizer.
“We certainly can’t control the rain, but we can control the nitrogen,” Schutte said.
Edgington says the corn industry continues to contact nitrogen fertilizer suppliers to express concerns about price and availability as the 2022 season approaches.
Dave Bergmeier can be reached at 620-227-1822 or [email protected]