Spring has arrived. The grass is green and the temperatures are rising. The temperature is not the only thing rising; I suspect many are watching the price of gas. Many prices are rising, which reminds me of the quote, “A rising tide lifts all ships.“ Will farmers like myself be swamped or rise with the tide?
There is little doubt how important oil and other fossil fuels are to our everyday lives. Many of the inputs a farmer uses are reliant on energy prices. The manufacturing of equipment and supplies, transportation costs of our inputs and commodities produced, and of course, the fuels we burn are rising with the high oil prices. By far the biggest increase to date is with fertilizer prices. Fertilizer costs are 1/4th to ½ of all non-land crop expenses.
I always knew that nitrogen fertilizer was reliant on natural gas for its production. Therefore the price of fertilizer can be swayed by the rising and falling price of natural gas. However, I never bothered to learn exactly how fertilizer is produced. As I started to write this week’s column I went to the computer and asked “Mr. Google” about fertilizer production. I knew a little bit about the Haber-Bosch process of burning natural gas with a catalyst to create ammonia by retrieving nitrogen out of thin air, but Mr. Google is smarter than I am and always has the complete answer.
Most of us have probably seen the common term for fertilizer as N-P-K, nitrogen, phosphorus and potassium. Phosphorus and potassium may fluctuate with energy prices, but nitrogen is by far the one fertilizer component that is truly beholden to natural gas. All grass crops, which include corn and wheat, are very reliant on nitrogen for good growth and high yields.
Anhydrous ammonia, a gas, is the first step in nitrogen production. It is usually the cheapest form of nitrogen. Urea is a white crystal of nitrogen made from ammonia. UAN, liquid nitrogen, is urea dissolved in water.
Each step in production requires more energy and adds cost. As the energy and grain markets have been rising, so have fertilizer prices. If a farmer did not lock in fertilizer prices last year they may feel like they are being swamped by high tide.
I am certainly not qualified as an economist, but I was certain our economy would enter a recession after the lockdown Covid-19 created one year ago. I had heard about a sharp increase in building materials that came soon after the pandemic, but it didn’t hit home until the other day when I went into a lumberyard.
I still find it surprising that within minutes of my farm I still see lumber being delivered and homes being built. Despite lumber costs almost doubling, construction appears to be unfazed. It wasn’t very long ago that the combination of inflated housing prices and high energy costs contributed to the Great Recession.
Is the tidal wave of higher prices just beginning? Or, is the tide about to subside? I hope the construction boom slows or I may be outstanding in a subdivision.
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