The Western ProducerFertilizer costs climb By Sean Pratt Reading Time: 3 minutes Published: February 4, 2021 News Urea prices are up about $100 per tonne since the start of the new year. | File photo Josh Linvilles tweet on Jan. 28 was an eye-popper. Those in the ag sector, do yourself a favour and take notes of what is happening right now, said the StoneX fertilizer analyst. You will want those in 10 to 20 years when the new generation in ag asks you what in the hell happened (in) 2020-21. What happened is an explosion in fertilizer values. Diammonium phosphate prices in New Orleans, Louisiana (NOLA), have jumped US$145 per tonne since Jan. 1. The price was $536 per tonne on Jan. 29, almost double what it was when the fertilizer year began on July 1, 2020. ADVERTISEMENT Urea prices are up about $100 per tonne since the start of the new year. Its a big rally, said Linville. Its very, very steep. Potash prices have been climbing but not nearly to the same extent as nitrogen and phosphate values. Those elevated NOLA import values for urea and phosphate have worked their way back to Western Canadas retail market. Retail prices are increasing and theres more increases to happen yet to reflect our current costs, said James Bauml, director of retail support with G-Macs AgTeam. We have seen our replacement costs jump, specifically since the new year. Prices are going to keep climbing as retailers continue to work their way through old inventory and replace it with expensive new product. Sales were strong in January and February due to high grain prices and many retailers have already chewed through that old inventory, said Bauml. He said western Canadian prices are inextricably linked to NOLA prices because retailers can either import product from New Orleans or buy from a local manufacturer like Yara International. ADVERTISEMENT If Yara cant get the price it wants in Canada, it will sell product to the U.S. market, so there is an arbitrage mechanism in place. Theyre going to sell to us at values that are reflective of what it would cost to bring product up from New Orleans, said Bauml. Linville said the fertilizer price rally can be traced back to a curtailment in Chinese production and exports of urea and phosphate. As the biggest producer in the world of urea, when they exit the marketplace it sends shockwaves out there. It really tightens up the supply side of the equation, he said. Linville isnt exactly sure what is happening in China. There are some reports that it is curtailing production due to environmental concerns and others say it is because the natural gas feedstock is being diverted to heat homes and for other purposes. China did not participate in Indias last urea tender in November 2020, forcing other suppliers to fill the void. That effectively wiped out world inventories of the product for the remainder of 2020 and into early 2021. ADVERTISEMENT The supply contraction is happening at the same time that demand is booming due to sky high grain prices. Dialing it down to the basics, the more money there is to spend on the inputs, the higher the demand is going to be and the more pressure were going to see on the prices to push higher, said Linville. In August, grain prices were terrible and it looked like fall fertilizer demand was going to be meagre. But then grain prices shot up and U.S. farmers started receiving huge COVID payments from the federal government and everything changed. Farmers transitioned from wondering how they were going to get cash flow for their operations, to contemplating how they were going to spend all their money before the new tax year, he said. The phosphate situation is similar to urea, with a huge reduction in Chinese exports forcing customers to find other suppliers. Theres not a tremendous amount of phosphate out there. It is very, very difficult to find, said Linville. The supply crunch has been exacerbated in the U.S. market due to countervailing duties on Moroccan and Russian phosphate. The mere threat of those duties curtailed imports from those important production regions starting in June, 2020. Linville said there is nothing that can be done about the supply of the commodity. The only tool (the market) has left is to jack the price up so much that it starts to kill demand, he said. Linville doesnt think the fertilizer price rally is going to end anytime soon unless there is a wet spring in the U.S. or grain prices start to tumble. He noted that UAN prices have closely followed urea prices but anhydrous ammonia prices have been stagnant. A lot of that is because its so weather dependent, said Linville. If it is dry this spring and farmers can get out in their fields, anhydrous prices will also appreciate rapidly.