Soaring fertilizer prices could push US farmers to plant fewer acres in corn next year, reducing production and maintaining support for corn prices.
As a result, big corn purchasers, such as cereal and baked-goods companies as well as meat producers, might need to prepare for a continuation of tight corn supplies and margin pressures into 2022. The US corn stocks-to-use ratio, an important measure of available supplies, is currently at a historically low level, and corn prices, while off their recent highs, are still at 8-year highs.
The USDA estimated in June that 2022 farm operating costs for US corn would increase 2.2% year over year. But Gro expects a bigger increase in costs due to the recent rise in fertilizer prices. Fertilizer costs represent between 33% and 44% of total operating costs for US corn farmers.
Growers may scale back corn acres as much as possible next year to avoid paying high prices for nitrogen fertilizers, while favoring soybeans and/or wheat, which require less fertilizer and therefore have lower total operating costs. While planting decisions typically take shape in February and March, farmers can begin placing fertilizer in corn fields as early as late fall of the previous year.
Prices for urea, a popular nitrogen-based fertilizer, skyrocketed earlier this month to their highest since 2012 in New Orleans, the US’s major fertilizer trading hub. DAP, a common phosphate fertilizer, is at its most expensive level in that market in a decade, after surging 10% since the summer.
There's more evidence fertilizer supply shortages could be coming. The US government is considering imposing tariffs on imports of UAN nitrogen fertilizers commonly used for corn, as Gro wrote about here. In addition, two big fertilizer manufacturers recently announced shutdowns of European facilities due to high prices for natural gas, which is used to produce nitrogen-based fertilizers ammonia and urea. The two main end products, ammonium nitrate and urea, are mixed with other ingredients like phosphorus and potassium to make the synthetic fertilizers used in crop production.
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