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The last time I wrote about fertilizer prices was in February. At that time, the conditions were there for fertilizer prices to decline in the Prairies. The forecasts were for lower fertilizer prices in 2023 compared to 2022 but still about 20% higher than in 2021. It’s time for an update on those forecasts and check the accuracy of the last forecasts. I also use this post as an opportunity to check if the main drivers of fertilizer prices in Alberta have changed.

A look at the data

Fertilizer prices

Let me begin by checking on the most recent data for Alberta fertilizer prices. These are the best fertilizer prices data for Canada that I know of. Unfortunately, I do not have data for fertilizer prices in Eastern Canada.

The data in Figure 1 are from Statistics and Data Development Section, Intergovernmental and Trade Relations Branch, Alberta Agriculture and Irrigation and USDA NASS. The Alberta fertilizer products are Anhydrous ammonia (82-0-0) full service with applicator, Urea (46-0-0) and Fertilizer (11-51-0). The US fertilizer price is an index (scale x 10) for the whole United States.

Only two months of new Alberta fertilizer prices data were published since my February forecasts. In those, the models predicted that the Alberta price for Anhydrous Ammonia (82-0-0) was to increase in February and then decline afterwards, and the Alberta prices for Fertilizer (11-51-0) and Urea (46-0-0) to decline. The data shows that the price of Anhydrous Ammonia (82-0-0) slightly declined in February and prices for Fertilizer (11-51-0) and Urea (46-0-0) declined, but more sharply than predicted.

The models predicted prices higher than those observed in March and April. This is from the scenarios that considered natural gas prices and barge rates too high compared to those effectively observed. I show below what happened with those prices recently.

Barge rates on the Mississippi River

Figure 2 shows downbound grain barge rates from St. Louis. This is a proxy I constructed for upbound barge rates on the Mississippi River, for which I could not find data.

Barge rates on the Mississippi River dropped sharply since the Fall. The June rate hit a low not seen since summer 2021. If conditions are not too dry this summer in the Mississippi River and Missouri River basins, fertilizer should move from Southern United States to the Canadian Prairies at a low cost in the next few months compared to last year.

Natural gas prices

Figure 3 shows that the drop in natural gas prices has been spectacular. The average Henry Hub natural gas price in June has been thus far below USD 2/million Btu, a level not seen since 2020. The futures forward curve predicts higher natural gas prices in the next Fall and Winter. This is expected seasonality.

Drivers of Alberta fertilizer prices

In my November 2022 post, I showed that the current price is the best predictor of fertilizer price next month. The importance of corn futures, natural gas prices and barge rate on the Mississippi River was much smaller. With natural gas prices and barge rates spiking in the Fall, I thought it was worth re-assessing the importance of variables to check whether the models still find that these variables matter.

Figure 4 shows the main drivers of fertilizer prices. The best predictor of fertilizer price is the price last month. Other variables are much less important and include the corn price, the natural gas price and lags for the barge rate on the Mississippi River. Compared the November 2022 post, the sets of variables selected by the models are similar but barge rates have lower importance.

Forecasts

I forecast fertilizer prices from plausible scenarios for the models’ variables. The three scenarios are as follows:

• Exchange rates, oil prices, barge rates and rail rates stay at their June 2023 averages thus far,

• The corn price follows its Futures Forward Curve (FFC),

• Three scenarios for natural gas prices (Henry Hub):

  • FFC: natural gas price follows the FFC.

  • FFC -25%: natural gas price declines by 25% from its FFC.

  • FFC +25%: natural gas price increases by 25% from its FFC.

Figure 5 shows the forecasts for the three scenarios. The models forecast fertilizer prices to continue declining. This is not too surprising given the sharp drops in natural gas prices and barge rates. Thus, if current economic conditions hold, we should observe prices for the three types of fertilizer to steadily decline in the next six months.

These forecasts come with a caveat based on recent price movements in the United States. Prices for certain fertilizers were higher in the United States at the end of May. Nonetheless, US fertilizer prices are about 20% lower than they were a year ago.

Conclusion

The forecasts show that conditions are there for fertilizer prices to continue their decline. In addition to what was mentioned above, fertilizer inventories in March, as Figure 6 shows, will support lower prices.¹ Overall, the news is good for farmers as they should see their fertilizer costs continuing their decline in the next six months.