By Nick Paulson, Gary Schnitkey, Joana Colussi, and Jim Baltz, Department of Agricultural and Consumer Economics, University of Illinois and Carl Zulauf, Department of Agricultural, Environmental and Development Economics, Ohio State University
Fertilizer prices have continued their more than year-long decline through the first two weeks of August 2023. On a per pound of nitrogen basis, urea and liquid nitrogen fertilizers have historically been priced at a premium of 35% to 40% above anhydrous ammonia.
However, the premium narrowed in 2022 as global fertilizer markets were disrupted by the Russia-Ukraine conflict. The premium on liquid, relative to anhydrous, has returned to more historical levels while the gap has continued to narrow between urea and anhydrous prices. This is attributed to continued expansion in global production capacity combined with lower demand prospects, particularly in Europe, where legislation aimed at improving air quality may further reduce urea use.
The major decline in fertilizer prices in general, and the attractiveness of urea in relative price terms specifically, may impact farmers’ nitrogen decisions leading into the 2024 crop year.
Relative Price Gaps Narrow as Fertilizer Prices Continue to Decline
Fertilizer prices in Illinois continued to decline in the first half of August 2023, according to the Illinois Production Cost Report from the U.S. Department of Agriculture (USDA). The average anhydrous ammonia price reported for August 10th was $586 per ton, down $285 per ton since July 27th, a decline of 33%.
Liquid nitrogen fell 26% to $397 per ton, down $140 per ton, over the same time period. Urea saw a moderate decline to $473 per ton, down $24, a decrease of 5%. These price declines continue a more than year-long period of falling fertilizer prices from peaks reached in the second quarter of 2022 (see farmdoc daily articles from August 1, 2023 and February 28, 2023).
Figure 1 reports average Illinois prices for anhydrous ammonia, urea, and liquid nitrogen on a $ per pound of nitrogen basis since the start of 2020. The price calculations are based on nitrogen contents of 82% for anhydrous, 46% for urea, and 28% for liquid.
Both liquid nitrogen and urea have typically been priced at a premium per pound of nitrogen relative to anhydrous due to the additional processing costs associated with their production.
The premium on liquid nitrogen, relative to anhydrous, has persisted since 2020. In contrast, the premium on urea narrowed for much of 2022, and the prices of anhydrous and urea have been very similar on a per pound of N basis so far in 2023.
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