Tight Supply and Strong Demand May Raise U.S. Fertilizer Prices
Nitrogen accounted for 56.6 percent of
the 21.3 million tons of chemical fertilizer
nutrients (nitrogen, phosphate, and
potash) used by U.S. agriculture in 2006.
The composite fertilizer price increased 113
percent between 2000 and 2007, led by
gains in nitrogen prices. During this 7-year
period, the price of ammonia, the main
source of nitrogen in fertilizer production,
increased 130 percent from $227 to $523
per ton. The price of urea, the primary solid
nitrogen fertilizer used in the U.S., rose 127
percent from $200 to $453 per ton.
Increased nitrogen prices affect all
crop producers, but especially corn and
wheat growers, for whom nitrogen costs
are the largest single operating expense.
Nitrogen applications accounted for 18
percent of the operating costs for corn producers
and about 30 percent for wheat
producers. Total nitrogen costs for U.S.
corn production were $2.98 billion in 2005
and $0.9 billion for wheat in 2004.
Corn accounted for the largest share
of nitrogen use among all crops. Planted
acres of corn were relatively unchanged
from 2000 through 2006, but jumped 19
percent from 78 million acres in 2006 to
93 million acres in 2007. Expanded planting
of corn acres is due to high corn prices,
driven by growing ethanol demand and strong export sales. Farmers are expected
to apply an additional 1 million nutrient
tons of nitrogen to the 2007 corn crop.
Furthermore, increasing world demand for
nitrogen is expected to continue in the
near term. Overall, global nitrogen
demand grew 14 percent from 2000 to
2006. Greater nitrogen demand from other
countries could make U.S. imports of
nitrogen fertilizers more costly.
At the same time, the U.S. supply of
ammonia for nitrogen fertilizers has been
declining. Because natural gas is the primary
raw material used to produce ammonia,
the volatile and upward trend in U.S. natural gas prices led to a 35-percent
decline in U.S. ammonia production capacity
and a 44-percent decrease in output
between 2000 and 2006. Meanwhile, U.S.
ammonia imports increased 115 percent.
The share of U.S.-produced ammonia in
the U.S. aggregate supply dropped from 80
to 55 percent, while the import share
increased from 15 to 42 percent. The
annual U.S. aggregate ammonia supply
declined 17 percent, while the inventory
level dropped 71 percent.
Further expansion of ethanol production
and continued strong export sales of
corn could boost U.S. demand for nitrogen
fertilizers. Further increases in natural gas
prices may limit U.S. production capacity
to produce ammonia. The additional supply
of nitrogen needed to meet the
increasing demand may have to come
from imports and thus make U.S. crop producers
more vulnerable to changes in global
nitrogen and natural gas markets.
This article is drawn from...
Impact of Rising Natural Gas Prices on U.S. Ammonia Supply, by Wen-yuan Huang, USDA, Economic Research Service, August 2007
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