By Scout Nelson
In the world of farming, the fluctuating prices of anhydrous ammonia can significantly influence the profitability of grain farms. Anhydrous ammonia, a major fertilizer, peaked at a staggering $1,500/ton in 2022 before plummeting to $600. Yet, as of late, it has rebounded to $800, leaving many pondering if this rise is merely temporary or indicative of a future trend.
Why is this price change so crucial? According to expert analyses fertilizers can gobble up 20% of farm expenses. In fact, they're second only to machinery in terms of costs, so even minor price adjustments can profoundly sway farm profitability.
Historically, models by Ibendahl relied on corn and oil prices to gauge anhydrous ammonia's costs. A 2021 shift threw these traditional predictors off balance. To adapt, Ibendahl integrated inflation expectations in early 2022, enhancing the model's accuracy.
For those on the ground, understanding these price trajectories is more than academic. Farmers often acquire their spring fertilizer during fall. Properly timing these buys could translate to improved profitability. As many fertilizers are interlinked in price, tracking anhydrous ammonia provides insight into the broader market's direction.
To predict these prices, various factors were examined carefully, including the connection between oil and anhydrous ammonia prices. Although produced from natural gas, anhydrous ammonia prices relate better to oil prices. Plus, its positive correlation with corn prices reflects demand dynamics for nitrogen-based fertilizers.
Recently, Ibendahl's models have been updated to incorporate a 6-month lag for oil prices and use inflation expectations, resulting in a model with a strong correlation.
So, what lies ahead for anhydrous ammonia? Using future market prices of oil and corn, coupled with an estimated 5% inflation rate, it wouldn't be shocking to see prices hover around $1,000 in the upcoming months.
Photo Credit: gettyimages-darcymaulsby
Categories: Kansas, Crops