The majority of Dustin Edwards’ annual fertilizer use consists of anhydrous ammonia. Edwards, who farms 5,500 acres in eastern Kansas, believes the $640 per ton it costs now is about double what the market should be.
“I feel like these guys are making so much margin,” says Edwards, speaking of major fertilizer suppliers. He farms a collection of far-flung leased fields. “But I think the fertilizer company we buy from are the ones getting squeezed,” he says. “The big distributors, they get their profit.”
Edwards buys the bulk of his supplies from Morrill Elevator in Hiawatha, Kansas. The elevator’s owner, J.R. Isch, demonstrates more caution on the subject — after all, he has to work with big distributors as well as about 80 individual farmer customers.
“I do see some problems with the concentration in the industry,” says Isch, who bought the elevator back from Cargill in 1990 (it had originally been owned by Isch’s grandfather). “The concentration has probably taken some of the competitiveness out of the market.”
Isch uses a broker to acquire fertilizer, rather than buy directly from, say, Mosaic. Brokers buy in such quantity that, if there are significant discounts, they are the ones who benefit.
“I do better buying through a broker because he’s buying a big hunk of product,” Isch says. “A lot of times you can’t just walk into a fertilizer company and say ‘I want 10,000 tons of fertilizer at X price,’” he adds. Big companies and brokers will sell a certain amount at a particular price to a buyer — but if the buyer wants more than a specified quantity, they have to pay more.
“In that way they kind of divvy out the supply,” says Isch of manufacturers and brokers. Edwards likes Isch, who has about 80 customers, because he believes Isch can get as good a deal as possible. Edwards finds that, generally, the best time to buy fertilizer is August and September.
Even though the federal government has been spending millions to help create and upgrade smaller U.S. fertilizer companies the past several years, Edwards can’t help but believe that regulations get in the way of increased production. At the farm level, he would like to install his own tank for storage of anhydrous but worries about the regulatory hoops.
Fertilizer made up about 20% of U.S. farm costs in 2022, with the percentage being even higher for growers of corn and wheat. Though fertilizer costs have come down this year, they remain historically high.
Josh Linville, StoneXUSDA estimates that fertilizer expenses this year will be $3.5 billion lower, a 9.7% decline from 2023. The fertilizer cost for farms in 2024 is forecast at $32.4 billion. Check out USDA estimates at: https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/farm-sector-income-forecast/
Farm budget projections as of this summer by the University of Illinois showed negative returns for corn (minus $110 per acre) and soybeans (minus $57 per acre). Fertilizer costs contribute to the negative outlook.
Concerns about consolidation in the industry have only grown with the purchase by Koch Ag & Energy earlier this year of the fertilizer plant in Wever, Iowa, owned by Netherlands-based OCI N.V. for $3.6 billion. Ironically, the plant was built more than a decade ago to provide more market competition with large firms like Koch.
The top three fertilizer companies now own 73.6% of NH3 production capacity, 84.3% of urea capacity and nearly 82% of UAN capacity, according to Josh Linville, vice president-fertilizer, StoneX Financial Inc.
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U.S. production of urea, UAN, and NH3 are all down compared to 2020, though not by a lot, according to Linville. Domestic demand for all three are down a bit in the U.S. over that time. The demand decline may reflect cutbacks due to higher prices but also efforts to not overuse fertilizer.
Expansion of fertilizer production in the U.S. is also difficult for additional reasons, according to Linville. First, political concerns often are a deterrent to building more capacity.
“Fertilizer is often viewed as a dirty industry and people don’t want it outside my back door,” says Linville.
Additionally, the $3.6 billion price that Koch paid for the Iowa plant is an example of the massive investment it takes to build such a facility from scratch.
“This is why we see fertilizer manufacturers buying up already existing capacity,” says Linville. “The big ones get bigger” because they are the ones that can afford the investment.
“Our pricing is still largely dictated by the world price,” says Linville. As it is, fertilizer production in the EU is only 75% of normal — which creates demand around the world.
The Nord Stream 2 pipeline, which would bring natural gas from Russia to Germany, was always opposed by the U.S. because it would increase Europe’s dependence on R
New fertilizer plantussia for energy. The U.S. imposed sanctions on companies involved in the project.
In September 2022, four explosions rendered both Nord Stream pipelines inoperable. Neither pipeline was actually on line. Early this year, German authorities issued an arrest warrant for a Ukrainian national suspected of sabotage in the wake of Russia’s 2022 invasion of Ukraine.
As a positive, Linville says there are enough natural gas deposits in the U.S. and Canada to produce all the nitrogen that might be needed in the U.S. “We are set up very well for that,” he says.
The crop price/input cost squeeze has forced producers like Edwards to adapt. This spring and summer he sold a fair amount of his corn with contracts at $4.40 and $4.60 per bushel. Turns out that was a good move.
“I’ve learned valuable lessons over the years,” says Edwards. “You have to earn everything you get.”
In 2021 the U.S. imposed tariffs on fertilizer imports from Morocco and Russia following petitions from Mosaic and CF Industries. At the time, the National Corn Growers Association accused Mosaic of “irresponsible” practices “that manipulate the supply curve” and “dictate price to farmers.” The tariffs on Moroccan imports were lowered in November 2023.
The Biden administration began the Fertilizer Production and Expansion Program in 2022 as a way to encourage companies in the U.S. to begin, expand, or improve production. The program has awarded $251 million in 57 projects in 29 states.
This spring FPEP funding was approved for 51 projects around the country.
The list of projects includes $2.5 million for Dairy Dreams LLC in Wisconsin to produce organic fertilizer, $3.7 million to BioXRG LLC in Texas to convert food waste into potassium fertilizer, and more than $32 million to Biogas Corp. in North Carolina for, among other things, buying an anaerobic digestion facility to increase availability of potash, phosphate and other components.
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