Series: Agriculture
Tags: fertilizer, inflation, natural gas, crop, transport
Time to update my forecasts of fertilizer prices. And good news, this post comes with new forecasts of fertilizer prices based indices for fertilizer prices from Statistics Canada.
As usual, let me begin by showing recent prices for fertilizers. Figure 1 shows data 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.
Over the last two years, we see that the price for Anhydrous ammonia (82-0-0) has trended down but that prices for Urea (46-0-0), Fertilizer (11-51-0), and the US price index have sort of flattened. Movements in the short run are more concerning as all prices have increased over the last few months. It seems that downward trends in fertilizer prices are reversing, or perhaps that prices are going toward a new equilibrium around their actual levels.
As I have discussed in previous posts, among the most important drivers of fertilizer prices in Canada are barge rates on the Mississippi River, the Chicago Mercantile Exchange (CME) corn price and the Henry Hub natural gas price. Let’s have a look at them before examining forecasts for fertilizer prices. In Figure 2, I forecast barge rates using time-series models, and the corn prices and the natural gas price follow their Futures Forward Curves (FFC).
Figure 2 shows that barge rates on the Mississippi have trended down but that my models forecast them to increase in the next few months. That forecast follows from typical seasonal patterns in barge rates which increase when water levels on the Mississippi are low. Unless Mississippi water levels drop, we should observe fairly stable barge rates. Corn prices appear to have bottomed out in February, but they have stayed low since. Low corn prices mean a weakening of the demand for fertilizers. As we learn more about the condition of the new crop and prices for 2024, we will gain insights about the demand for fertilizer for the 2025 crop, and in consequence about fertilizer prices in the coming months. Natural gas prices are climbing, raising the cost of producing certain fertilizers.
Overall, Figure 2 shows there are opposite forces affecting fertilizer prices in Canada. That is where models are particularly useful in summarizing information into forecasts.
Figure 3 shows forecasts for fertilizer prices based on Alberta input prices data. The economic conditions currently point toward relatively stable fertilizer prices. The models forecast a small increase in the price for Anhydrous Ammonia (82-0-0) following higher natural gas prices, but small declines in the prices for Fertilizer (11-51-0) and Urea (46-0-0).
I prepared forecasts for the fertilizer price indices from the Statistics Canada table 18-10-0266 for industrial product price indices. The prices indices are for all of Canada.
Comparing Figures 3 and 4, we observe that fertilizer price indices have moved in sync with Alberta fertilizer prices. Accordingly, it is not surprising that the forecasts for the price indices are like those for Alberta fertilizer prices. The models forecast that under the current conditions, fertilizer prices should stay relatively stable over the next six months.