Phosphate Fertilizer

A global appetite for crop nutrients has U.S. suppliers hungering for the past.

It's no secret. Fertilizer material prices have soared, hitting record levels in the spring of 2005, according to data collected by USDA.

Why is this happening? Fertilizer prices are determined like the prices of most ag commodities. Supply and demand factors in major markets around the world drive the prices American growers pay for fertilizer materials.

Recently, increased global demand has played a large part in placing upward pressure on fertilizer prices. Total world fertilizer demand increased by 13%, or an estimated 20 million nutrient tons, from fiscal year (FY) 2000-01 to FY 2004-05. World nitrogen (N) demand grew by nearly 10% and phosphate demand by 13%, while potash demand grew a whopping 25% over this period.

Considering Supply Factors

Supply factors also have played a role in driving up fertilizer prices, particularly for N. Anhydrous ammonia is the source of nearly all the N fertilizer produced in the world. The cost of natural gas accounts for 70% to 90% of the production cost of ammonia. Thus, when U.S. natural gas prices rose significantly beginning in 2000, the cost of domestically produced ammonia increased. Average U.S. ammonia production costs doubled from 1999 to 2003, and increased again in 2004 and 2005 as natural gas prices have continued to rise.

Overall, 16 domestic ammonia plants have closed permanently since FY 1998-99, primarily as a result of the rise in natural gas prices, and an additional five plants are currently idle. As a result, U.S. ammonia production has fallen more than 6 million tons, or 34%, in just five years. Consequently, the U.S. fertilizer industry now relies on imports for nearly 45% of those supplies.

Increased global demand has been the driving factor behind the recent rise in phosphate fertilizer prices. Higher costs for major production inputs, such as ammonia and sulfur, also have placed upward pressure on the prices of the major phosphate materials like monoammonium phosphate and diammonium phosphate.

As a resource-dependent nutrient, potash is produced in only 12 countries. Over 83% of the potash produced worldwide is imported by both producing and non-producing countries to meet their needs.

While other countries impact the potash market, potash market fundamentals begin in North America. Canada is the world's largest producer and exporter of potash, accounting for one-third of total production and 40% of world trade. Nearly half of Canada's exports go to the U.S., the largest potash importer.

After years of relative stability, North American potash prices increased significantly beginning in July 2003. Higher energy prices have added to the cost of producing potash, placing upward pressure on prices. However, the lion's share of recent potash price increases is due to the 25% growth in global potash demand.

Higher transportation costs have also added to the delivered price of all fertilizer materials.

Still Below Other Inputs

Fertilizer prices are up; however, when you put it in perspective, fertilizer price increases are in line with, and even below, those observed for most other major farm inputs. Despite the significant impact of rising natural gas costs and the large increase in global fertilizer demand, average fertilizer prices in April 2005 stood 58% higher than their 1990-92 level, according to USDA. In comparison, prices for farm machinery and seed, along with wage rates, were up approximately 70%, while fuel costs more than doubled over the same period.

Price increases are not a random phenomenon. Fertilizer prices, like those for the majority of agricultural commodities, are impacted by a host of factors, including global supply and demand trends, along with energy prices. The information above is just one example of information gathered and disseminated by The Fertilizer Institute (TFI). We encourage you to contact us for information on our statistical programs or membership in TFI.