U.S. growers may be in for another year of high fertilizer costs.
The U.S. Department of Energy recently released its first estimate of natural gas prices, another projected historical high, which translates into $30 to $50 higher in fertilizer costs for the fall compared to this past spring.
"The Department of Energy expects natural gas prices to climb to about $6.20 to $6.50 per million BTUs (British Thermal Units) this fall," says Matt Roberts, an Ohio State University agricultural economist. "That works out to fertilizer prices of $450 per ton. In the spring, prices were averaging around $400 per ton."
Natural gas prices are currently under $6 per million BTUs â€” lower than usual because of unseasonably cool temperatures across much of the country. But whether those prices remain low heading into fall and winter remains to be seen.
"If this fall and winter are warm, like last year, we could see those projected prices decline," says Roberts. "But if itâ€™s a cold and long winter, those prices could climb quickly."
Roberts anticipates growers will be keeping a close eye on future reports as the fall looms. Anhydrous ammonia, the most common fertilizer used to apply nitrogen to the soil in the fall before planting and in the spring during the early stages of plant growth, comes from natural gas. In addition, the process behind anhydrous ammonia production requires heat, which is generally generated by burning natural gas.
"There is almost a direct relationship between wholesale fertilizer costs and natural gas prices," says Roberts. "And because of the volatility of the natural gas market, itâ€™s becoming more difficult for growers to lock in their fertilizer prices with distributors."
High summer and winter energy consumption, along with declining domestic natural gas inventories and limited import suppliers, are just some of the factors behind the rise in natural gas prices in recent years. And it seems the trend will continue for some time to come.
"Alternative fertilizers are available, but because they are in liquid or solid form, they have different availabilities and require different machinery," says Roberts. "Growers wonâ€™t have a big choice when it comes to replacing anhydrous ammonia. They will do what they can in managing what is available to them by minimizing their use or using them more efficiently."