The good news is fertilizer prices have dropped since skyrocketing higher in recent years. The bad news is those prices are still high. Dave Widmar of Agricultural Economic Insights says determining the true impact of fertilizer prices on farm budgets can be challenging.
“The challenge is nitrogen can be higher or lower than the P and the K, so how do we pull all this to get one measure? The first thing we shared was what the corn fertilizer expense looks like in 2024 if we take a hypothetical application, which is 180 70 70, and compare it to prices going all the way back to 2010, that blend here in 2024 is about $155-$160 an acre, which is down from about $270 an acre two years ago. On the one hand, it’s big decline. But on the other hand, that $160 is about the third-highest level we’ve seen in almost 14 years of data, so it’s still historically high, but it’s come down a lot. I think that’s gonna be a common theme as producers prepare for their budgets here in 2024 and beyond.”
The data shows it’s not just high fertilizer prices that put a big squeeze on profits. The bigger challenge comes when commodity prices fall faster than the cost of inputs like fertilizer.
“It’s not generally the high absolute fertilizer prices that caused the most damage to the budgets. It’s when the commodity prices fall faster than fertilizer prices adjust, and that’s what leads producers in a squeeze. Thankfully for 2024, that expense as a share of budgeted revenue is at 20 percent, but it’s still historically high. Back in 2017 to 2021 or so, that was around 16 percent. So, we’re still a little bit on the highest side, but there has been some improvement.”
He talks about factors that could influence where fertilizer prices go in the next few years.
“The one that we think is important to keep an eye on for corn and nitrogen is where are corn prices going to be six to nine months from now? Where are energy prices going to be in six to nine months? Now, there’s quite a bit of a lag there, so we need to keep an eye on both energy prices and commodity prices. And there’s another variable, transportation costs, which are really important and kind of another proxy for energy prices. But in general, if energy prices trend lower, and corn prices trend lower, that’s going to be lower fertilizer expense. Producers want to see those high corn prices in their budgets for profitability. Again, it’s going back to what we talked about earlier. High fertilizer prices in and of themselves aren’t the challenge. It’s what are fertilizer prices relative to the rest of the budget situation?”
He says lower fertilizer costs for soybeans could mean more acres for beans than corn in the future.
“While they don’t use a lot of that nitrogen, they use the P and K, so one thing that we dove into is looking at how have recent fertilizer prices distorted the relative appeal for those corn versus soybean debates that many producers might be thinking about and challenging themselves. One of the things that we saw here is, in general, there’s about an $80 an acre difference in the fertilizer expense. Corn fertilizer is about $80 an acre more expensive than soybean fertilizer expense. When we were back in 2022 with really high fertilizer prices, that spread got to about $170 an acre, so it’s about twice as wide as it was before. That put a bit of a headwind on corn budgets. Heading into 2024, it’s back to that average of $80 more an acre on the corn budgets for fertilizer expense than on the soybean budgets, but that’s still higher than where we were. We were around $50 to $60 an acre spread back in 2016 to 2022. So, if we’re looking for soybeans to have a really strong position, we would expect this fertilizer price situation to be even more favorable to soybeans. It just hasn’t gotten there quite yet.”
Again, he says fertilizer prices and expenses will be lower in 2024, but budget challenges still persist. For more information, go to aei.ag.