Grain bins with stock market numbers

The push-pull effect

Apr 23, 2019

Why corn and fertilizer prices are out of sync.

The past decade has brought significant changes to domestic and global fertilizer industries. One of the biggest shifts has been the disconnect between grain and fertilizer prices.

Historically, the two markets have moved up and down somewhat in sync. “Between the mid-2000s and early 2010s, both grain and fertilizer markets were going through what’s known as a demand-pull market,” explains Jason Marthaler, director of supply, trading and risk management, CHS Agronomy.

“There was rapid growth in demand for soybeans, especially from China. The buildout of the ethanol industry boosted demand for corn. And growers in several parts of the world experienced crop failures,” he says. “Those factors led to increased demand for grain, which pulled grain prices higher.”

The need for fertilizer to produce grain was also increasing faster than new fertilizer plants could get up and running.

All that changed in the mid-2010s, Marthaler says, when fertilizer and grain markets began to transition from demand-pull to supply-push markets and respond to different market drivers.

Corn vs. nitrogen price comparison graph

“Fertilizer markets are now being largely driven by global energy prices, since energy costs make up a significant portion of fertilizer production costs. Grain markets are responding to other variables, such as weather and tariffs.”

Over the past few years, lower U.S. energy prices have favored U.S. fertilizer production, while marginal-cost producers in China and eastern Europe have reduced production and exports because higher energy prices there have increased their cost of production. “For example, China’s urea exports dropped from 18 million in 2015 to 3 million in 2018,” notes Marthaler.

Since 2016, new U.S. nitrogen plants have added 4.5 million tons of urea to annual domestic production, reducing the need for imports.

Global energy as nitrogen market driver graph

Despite those shifts, the markets for urea and most other types of fertilizer remain global markets, he says. “That’s why CHS continues to develop strategic global connections and currently sources fertilizer from producers in more than 20 countries.

“We’ve invested in key production facilities and maintain a domestic terminal system that supports efficient distribution to our customers,” he adds. “CHS has also assembled an industry-leading team of experts to navigate the complex global fertilizer supply chain.”

Check out the full magazine with this article and more.

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