Bill Taylor who farms 2,500 acres of corn and soybeans near Sedalia, Missouri is shocked at the rising costs of everything, especially the fertilizer that provides his crops with necessary nutrients like potassium, phosphorous, and nitrogen, ensuring a decent yield from his crops. “Prices are all higher, it’s just crazy. Guys like me are talking about reducing the amount [of fertilizer] we apply, or maybe delaying to see if prices come down. It’s going to mean lower profits, or not even being able to break even” (news.stlpublicradio.org).
According to the US Beaureu of Labor Statistics, fertilizer prices are now the highest they’ve been since the Great Recession (focus-economics.com).
But, what is causing this sudden spike in fertilizer costs, what does it mean for farmers in the US and around the globe, and how does it effect real estate and land valuation?
A complex network of geopolitical, and economic factors have influenced this surge and it may mean rising food costs for all of us as well as a shift in the way real estate agents help their clients buy and sell land.
Fertilizer costs are determined by two factors: what is occurring where it is MADE and DEMAND from numerous other countries (fb.org).
There are three main types of fertilizer produced for agricultural use-nitrogen, phosphorus, and potassium and they require raw materials as well as production materials like natural gas. The surge in natural gas prices in the middle of 2021 resulted in a reduction in producing ammonia-a key input of nitrogen fertilizer production (fas.usda.gov).
It shouldn’t come as too big of a surprise, that most countries rely on these fertilizers to be imported from countries like China, Russia, and Belarus (fas.usda.gov) that have access to the better part of these natural resources and have built production factories to accommodate the world’s fertilizer needs.
It’s what is happening in these countries that has partially caused the rise in prices.
Coal price increases in China have led to a rationing of electricity usage which means a shut down in some production plants as making fertilizer requires large amounts of heat and pressure. As a result, China imposed a quota on fertilizer exports, particularly phosphates, in order to maintain domestic availability (fas.usda.gov/blogs.worldbank.org).
Of course, Russia’s invasion of the Ukraine has caused the European Union and the United States to impose sanctions and railway restrictions on Russia and Belarus limiting the amount of fertilizer these major export countries can actually deliver.
COVID, extreme weather, and the price of raw materials have also negatively affected production.
Now, let’s add to the squeeze. Not only is supply DOWN, but demand is UP! While the US demand for fertilizer has actually decreased over the last five decades, the demand for agricultural nutrients in the rest of the world has increased. Corn, wheat, and soybeans are the three crops that require the most use of applied nutrients and those are the crops that are bringing in the money! It stands to reason then that those are the ones of which farmers want to take advantage despite the fact that they are expensive to raise and require high input costs (network.land.com).
In short, a perfect storm of circumstances, both geopolitical and economic have influenced rising costs of fertilizer which farmers will then be passing down to consumers increasing the cost of food commodities and, ultimately, contributing to continued inflation and a new way of helping landowners find that perfect buyer.
First off, inventory for transitional land in rural areas is low while the value of cropland has increased almost 8% since last year. Farmers are glad to see the inflation of their assets with the increase valued of cropland helping them attain loans or profit if selling, But, buyers are asking for large tracts of land to be divided into smaller, more affordable parcels of 10 and 20 acre tracts or are laying back on purchases until they see where this market is heading. People aren’t joking when they say that farmers are the heartbeat of the economy. What affects them, trickles down to the rest of us. As a real estate agent, it’s my job to know the market, know the people, and know the challenges that my client’s face and to advise accordingly. I don’t just want to make a sale. I want to make lasting friends and strong, rural communities.