Series: Agriculture
Tags: fertilizer, inflation, natural gas, crop, transport
The last forecasts showed that conditions were there for Alberta fertilizer prices to decline. That’s what happened. Lately, fertilizer prices have climbed in the US, in part from higher natural gas prices. US fertilizer prices are still much lower than at the same time a year. With economic conditions changing and higher prices in the US, it’s time for an update.
Unfortunately, I still do not have the data for fertilizer prices in Eastern Canada. The strike affecting the St. Lawrence Seaway could cause higher fertilizer prices in Eastern Canada depending on its duration. I’ll come back to this topic at the end of this post.
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.
Fertilizer prices are significantly lower than they were a year ago. They generally trended down as predicted in the last set of forecasts. More recently, between July and August, the price of 46-0-0 climbed, the price of 11-51-0 slightly ticked up and the price of 82-0-0 declined.
Barge rates on the Mississippi River have climbed with low water levels. They are likely to stay low for a while given the expected below-normal precipitations in the upper Midwest.
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 have climbed but are nowhere as high as last year. They’ve already declined since their peak in September.
Figure 3 shows that natural gas prices rose lately but that they are much lower than a year ago. The recent increase follows seasonal patterns but uncertainty with the conflict in Israel is likely contributing to a sharper increase than otherwise. The absence of Russian natural gas in the European Union market is also contributing to higher prices.
The US corn crop is big and corn prices have fallen since the start of the year. US corn prices are nearly two US dollars per bushel lower than they were a year ago.
I forecast fertilizer prices from scenarios for the models’ variables:
Exchange rates, oil prices, barge rates and rail rates stay at their October 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.
The FCC for corn shows that markets expect corn prices to rise slowly throughout the crop year, as expected under normal market conditions. For natural gas, prices are expected to increase until February and then to decline.
Figure 5 shows the forecasts for the three scenarios. The forecasts are for stable fertilizer prices, and even a small decline in the case of anhydrous ammonia. This is not too surprising. Corn prices are one of the main predictors of fertilizer prices. Lower corn prices appear to overcome increases in natural gas prices and barge rates, resulting in lower expected fertilizer prices.
The St. Lawrence Seaway strike could cause higher fertilizer prices in Eastern Canada. Strong fertilizer inventories should help ease the impact of the lack of supplies in the short term. Data for fertilizer inventories for September in Figure 6 show that Eastern provinces were not in a bad position before the strike began. Eastern inventories of UAN were low compared to the previous two years. For MAP and Urea, they were similar to the previous two years. Let’s hope the strike will not last and that given decent inventories, impacts on fertilizer prices will be minimal.
In Western Canada, inventories compare to previous years. This reinforces the forecasts above that conditions are there for stable fertilizer prices in the next six months.