The Spring Fertilizer Outlook in Two Words? ‘Cautiously Optimistic’
February 21, 2022 Whenever one is preparing an industry outlook article, two of the most overused words tend to be “cautiously” and “optimistic.” By their definitions, these two descriptors can cover a lot of ground when it comes to speculating on the annual “ups-and-downs” of any marketplace.
And truthfully, when looking at how the fertilizer category might perform this spring, the key industry drivers from 2021 seem to point to some stronger-than-average potential. According to the 2021 CropLife 100 survey, the nation’s top ag retailers saw their crop nutrition revenues grow to $15.3 billion. This represented an impressive 19% increase over the 2020 fertilizer category sales figure of $12.9 billion.
Likely tied to this sales growth was the fact that U.S. growers made a lot of money last year. According to USDA’s Economic Research Service, U.S. net farm income increased by $18.4 billion from 2020, topping $116.8 billion in 2021.
Put together, these two factors seem to make the word “optimistic” a given for the 2022 spring fertilizer outlook. However, when prices come into play, the word “cautiously” rears its ugly head. For example, grower-customers were paying an average of between $300 and $400 per ton for anhydrous ammonia for the fall 2020 application season. But by the end of 2021, this amount had ballooned to between $1,000 and $1,200 per ton. Other key macronutrient prices at year’s end included $885 per ton for monoammonium phosphate (MAP), $815 per ton for diammonium phosphate (DAP), and $775 per ton for potash.
The Outlook for 2022
So, with all these variables tossed into the mix, what is the 2022 spring outlook for the fertilizer category? According to George Secor, President/CEO for Sunrise Cooperative, Fremont, OH, things look somewhat positive.
“Sunrise is fairly optimistic for the 2022 crop year,” says Secor. “We set ourselves up with a nice start to the fall season, selling quite a few tons back in May and June of 2021 for the fall application. In late December 2021, the corn price was $5.50 and Soybean price was $12.75. These values give us good optimism for fertilizer prices, as with traditional yields and these prices, most growers will generate roughly $300 per acre, [giving them] more gross dollars growing corn over soybeans. It will not take $300 per acre more to grow corn than soybeans. Therefore, corn acres should be strong throughout our trade territory. As we all know, strong corn plantings will be good news for fertilizer applications.”
Still, he does add a note a caution to his outlook. “So, although I am positive for fertilizer application, I believe we will have enough price headwinds that it will not be a record year or anything like that,” says Secor.
Todd Dysle, Crop Nutrients Product Manager for CHS Agronomy, Inver Grove Heights, MN, agrees with this outlook. “With high input costs and continued favorable commodity values, the ingredients are in place for another solid fertilizer season,” says Dysle. “We expect a significant crop to be planted in soil that needs to be nourished to support yield goals.”
Meanwhile, Rod Wells, Chief Supply Chain Officer for GROWMARK, Bloomington, IL, falls more into the “cautious” camp going into the 2022 spring fertilizer season. “I see the fertilizer outlook as neutral for 2022,” says Wells. “Commodity prices are still strong and somewhat bullish for grains. Net income at the farmgate for 2021 may be a recent high and many growers have invested in inputs such as fertilizer, seed, and crop protection even with increased costs per unit. Fertilizer expenses are at an all-time high and because of the increased investment, we may only see 90 million to 92 million acres of corn for the upcoming 2022 year.
“This could and may be bullish for fall 2022, if harvested acres are less and we only see an average yield of 178 bushels or less,” he continues. “Demand would exceed supply for corn and maybe wheat as well and this will keep grain prices at a level, so growers can afford to invest in fall fertilizer even though costs may still be above the five-year average price for nutrients. If we do not have any severe weather issues this winter or next summer to disrupt production and transportation of fertilizer, then adequate fertilizer inventories may exist, and some devaluation of fertilizer input costs should take place. This could give us some retreat in expense for fertilizer at both the retail level and the farmgate. This would be positive, or at least maintain average use of fertilizer.”
Wells says that anything positive regarding fertilizer prices would be welcome news to ag retailers and their grower-customers. “The retailers’ risk is unbelievable,” he says. “Caution will have to prevail and cash flow may be challenged with high costs of fertilizer. Back-to-back purchases and sales may be more common to protect financial positions. Common sense and patience will need to prevail. Communication between growers, basics, and vendors will be essential to insure sustainability in this environment.”
Sunrise’s Secor concurs. “There are many retailers absolutely terrified of the price risk they are taking on to have inventory,” he says. “There are several retailers who are absolutely refusing to own any product unless they have it sold. After the 2008 experience many folks had, I can totally understand this aversion to risk, but this concerns me a lot. When growers finally start showing up for product, where will it be?”
The Macronutrients Question
With this “cautiously optimistic” outlook for the whole of the fertilizer marketplace, how might the key macronutrients perform? According to Secor, nitrogen-based fertilizers, as always, are likely to see the most positive usage numbers. Other products, not so much.
“Nitrogen will do best by far as you simply cannot skip that and grow a great corn yield,” he says. “Phosphorus will take it most on the chin with cost. I also predict that sulfur will probably be the single nutrient with the largest growth for Sunrise this year as well. Sulfur is getting the point where it is non-negotiable. Growers understand the importance of sulfur to optimum grain production.”
GROWMARK’s Wells generally agrees with Secor on the macronutrient outlook for spring. “Growers will always apply nitrogen, but phosphorus and potash use may weaken based on price and availability,” he says. “There are a lot of moving parts that are affecting phosphorus and potash such as tariffs, strength in the dollar, transportation, COVID-19, mine shutdowns, weather, natural gas, and much more. But if supplies are adequate or exceed demand, then prices should go south, and consumption will be adequate to maintain yields and profitability at the farmgate. Phosphorus and potash use may back off 5% to 12% for 2022. This may pressure domestic fertilizer prices.”
Two nurse tanks of ammonia await transport.
However, as Wells is quick to point out, there are always potential wild cards or so-called “black swan events” that could rapidly push this “cautiously optimistic” outlook into “very pessimistic” territory. “We live in a highly changing climate that is much more than the old supply and demand barometer,” he says. “We have the political atmosphere that is not only our government, but a worldwide political arena that sometimes can change overnight and we have very little control of but more or less victims of those changes. Regulations and legislation at an international level constantly changes the parameters that we have to work with. Transportation and labor costs will continue to add to the expense structure that we work with. (Maybe I should say the lack of adequate transportation and labor!) So, some of these factors can be in our favor and others work against us.”
CHS’ Dysle also sees several other wild cards in his spring 2022 fertilizer crystal ball. “Geopolitics, weather, river access, and logistics can have a positive or adverse influence on any season,” he says. “Additional considerations this season include the influence of tariffs and their impact on an already complicated supply and demand equation.”
Watching Grain Prices
Meanwhile, Sunrise’s Secor thinks grain prices could muddy up the 2022 spring fertilizer picture. “The one wild card I am most worried about is what are grain prices going to do?” he says. “If we have grain prices that fall apart between now and spring planting season, things could get really interesting and everything I have shared with you really will not hold much water at all.”
Still, Secor warns that how ag retailers perform this spring when it comes to fertilizer could depend on largely how they themselves perform. “I think our biggest challenge to growth will be ourselves,” he says. “We cannot help but feel like we have to look out for our growers. By looking out for them, many on our team will encourage cutting back phosphorus and potash levels to get a budget to where growers and Sunrise personnel are comfortable with the overall risk per acre the grower is going to take. So, though a root cause will be high prices, our own mindset and approach to look our growers will be a big limitation.”
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