Forecasting Fertilizer Prices

The USDA says fertilizer accounts for 39 percent of the total cost of producing corn in the U.S. This cost, and corn's dominance in Nebraska fields, means swings in fertilizer prices can have significant financial repercussions for Nebraska corn producers. This has borne out over the past few years. Prior to the pandemic, anhydrous ammonia prices were generally between $400-$600 per ton. Beginning in 2020, prices started moving sharply higher ultimately topping out at over $1,600 per ton before starting to drift lower. Prices currently range between $700-$750 per ton.

Even though it is still in the middle of the growing season, farmers are already keeping an eye for potential fertilizer pricing opportunities for the next growing season. And given the price volatility in recent years, timing fertilizer purchases has been troublesome. To help, agricultural economists at both Kansas State University and the University of Illinois have developed models to forecast anhydrous prices. The high correlation between anhydrous and other fertilizer prices means forecasting anhydrous prices can also offer pricing insights for all fertilizers.

The Kansas State model incorporates corn prices, oil prices, and inflation expectations as variables to forecast anhydrous ammonia prices. It is designed to project prices 12 months into the future. The latest projections in January forecast anhydrous prices of $850 per ton for this year. Since then, corn prices and inflation expectations have softened, and oil prices have remained roughly the same. Thus, one would expect the model, if updated with current prices, would forecast slightly softer anhydrous prices today. More information on the model can be found here.

The University of Illinois model also incorporates corn prices but differs from the Kansas State model in that it uses natural gas prices and lagged anhydrous prices as variables instead of oil prices and inflation expectations. As an aside, a recent paper in the Journal of Agricultural and Applied Economics Association says natural gas prices have had the most influence on fertilizer prices in recent years. June projections from the model forecast anhydrous prices will remain at current levels this fall (Figure 2). The projections assume corn prices of $4.00 per bushel and natural gas prices at $2.35 per million British thermal units. Information on the Illinois model can be found here.

If the past few years are any measure, sudden changes in corn, oil, or natural gas prices can lead to volatile changes in fertilizer prices. Crop producers will want to monitor markets closely.

FIGURE 2. ACTUAL VS. PREDICTED ANHYDROUS PRICES, ILLINOIS MODEL (JUNE 2024)

Source: Paulson, N., G. Schnitkey and C. Zulauf. "Where Might Nitrogen Fertilizer Prices Be Headed?" farmdoc daily (14); 114, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, June 18, 2024.