Tight Supply and Strong Demand May Raise U.S. Nitrogen
Fertilizer Prices
Wen-yuan
Huang
Nitrogen accounted for 56.6 percent of the
21.3 million tons of chemical fertilizer nutrients
(nitrogen, phosphate, and potash) used by U.S. agriculture
in 2006. The composite fertilizer price increased
113 percent between 2000 and 2007, led by gains
in nitrogen prices. During this 7-year period, the
price of ammonia, the main source of nitrogen in
fertilizer production, increased 130 percent from
$227 to $523 per ton. The price of urea, the primary
solid nitrogen fertilizer used in the U.S., rose
127 percent from $200 to $453 per ton.
Increased nitrogen prices affect
all crop producers, but especially corn and wheat
growers, for whom nitrogen costs are the largest
single operating expense. Nitrogen applications
accounted for 18 percent of the operating costs
for corn producers and about 30 percent for wheat
producers. Total nitrogen costs for U.S. corn production
were $2.98 billion in 2005 and $0.9 billion for
wheat in 2004.
Corn accounted for the largest
share of nitrogen use among all crops. Planted acres
of corn were relatively unchanged from 2000 through
2006, but jumped 19 percent from 78 million acres
in 2006 to 93 million acres in 2007. Expanded planting
of corn acres is due to high corn prices, driven
by growing ethanol demand and strong export sales.
Farmers are expected to apply an additional 1 million
nutrient tons of nitrogen to the 2007 corn crop.
Furthermore, increasing world demand for nitrogen
is expected to continue in the near term. Overall,
global nitrogen demand grew 14 percent from 2000
to 2006. Greater nitrogen demand from other countries
could make U.S. imports of nitrogen fertilizers
more costly.
At the same time, the U.S. supply
of ammonia for nitrogen fertilizers has been declining.
Because natural gas is the primary raw material
used to produce ammonia, the volatile and upward
trend in U.S. natural gas prices led to a 35-percent
decline in U.S. ammonia production capacity and
a 44-percent decrease in output between 2000 and
2006. Meanwhile, U.S. ammonia imports increased
115 percent. The share of U.S.-produced ammonia
in the U.S. aggregate supply dropped from 80 to
55 percent, while the import share increased from
15 to 42 percent. The annual U.S. aggregate ammonia
supply declined 17 percent, while the inventory
level dropped 71 percent.
Further expansion of ethanol production
and continued strong export sales of corn could
boost U.S. demand for nitrogen fertilizers. Further
increases in natural gas prices may limit U.S. production
capacity to produce ammonia. The additional supply
of nitrogen needed to meet the increasing demand
may have to come from imports and thus make U.S.
crop producers more vulnerable to changes in global
nitrogen and natural gas markets.
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