Spend Matters welcomes this guest post from Verity Michie, market analyst at Mintec.
In the run-up to spring, we most look forward to nicer weather, more daylight hours, flowers blooming and the anticipation of summer. For farmers, early spring is typically the time to prepare for crop fertilization. Fertilizers provide the added nutrients necessary for crops and plants to grow faster. One of the major macronutrients provided by fertilisers is nitrogen. As most plants and crops cannot use nitrogen directly from the air, it must be provided as ammonium or nitrate ions, which are mainly derived from ammonia.
U.S. ammonia prices have been on a downward trend since the beginning of 2015, reaching a seven-year low in November 2016. So why have ammonia prices suddenly started rising? In order to answer this question, we will need to look at the reasons behind the two-year-long decline.
After reaching 21-month highs in November 2014, U.S. ammonia prices fell 68% throughout the two-year period. Previously falling costs for natural gas (primary feedstock for ammonia) caused production of ammonia to rise, as producers took advantage of increased profit margins. Higher stocks in the U.S. dragged prices down to seven-year lows in November. However, prices uprooted and have risen 57% since November.
So what has caused this sudden change? Well, it has been a mixture of different events. Firstly, natural gas prices have been rising throughout 2016. Secondly, the transportation of pipeline ammonia between Russia, a major producer and exporter, and Ukraine was suspended at the end of 2016, leading to tighter global supply. And finally, demand from downstream fertilizer manufacturers has been rising ahead of the spring season. A combination of these three factors has caused prices to shoot up.
The good news for all you farmers out there is that natural gas prices have fallen in 2017. Hopefully as this filters through the supply chain, we may see some eventual softening of fertilizer price.