Knowledge Center

Author: Andy Drohen

If you currently manage turfgrass, there is a good chance the past couple of years have taken a toll on your bottom-line or budget. The input/raw material markets have been turned upside down since 2020 due to COVID-19, weather events, and most recently, the Russia and Ukraine War. Whether we are talking about fertilizer, grass seed, chemicals, or specialty products, each one of these inputs has been affected in some shape or form. This has been the most volatility our industry has seen in many years. To better understand the raw material markets and identify solutions, in this article we will reveal insights into the global fertilizer trade, provide some predictions on what the future holds, and offer solutions that will innovate the way you fertilize—reducing your expenses and improving your bottom-line.

In the fertilizer manufacturing industry, raw materials are typically distributed by train, truck, or barge loads, so when it comes to discussing fertilizer pricing, it is often referred to by the ton. For scale, a bulk truck of fertilizer is 25 tons, a train/rail car is 100 tons, and a barge that comes up the river is 1,500 tons. Vessels coming over the seas can be 7,500 tons or more. 

A main benchmark the fertilizer industry uses for pricing is NOLA. NOLA stands for New Orleans, Louisiana, which refers to an area located at the mouth of the Mississippi. NOLA is the main entry point for most fertilizers and raw materials to enter the U.S., which are then distributed to manufacturing facilities in the surrounding areas and then sent up the river for distribution throughout the country. The price at NOLA is generally where the base price for raw materials begins in the U.S. fertilizer industry.

To gain perspective on how drastic the raw material markets have fluctuated over the last two years, let's revisit the time prior to COVID when the market was somewhat stable. In a stable market, raw material prices typically fluctuate by $10–$20 per ton per month, sometimes a rare $40/ton change, up or down. Due to the COVID health crisis and world events, the past couple years have seen significant monthly price increases of $50+ per ton. This resulted in raw material prices quadrupling in some cases, increasing hundreds per ton more than in previous years. As you can see in Figure 1., the prices per ton, which make up many of the standard materials in a bag of fertilizer, have increased significantly over the past 16 months.

Figure 1. Fertilizer prices per ton out of NOLA. Adapted from “Green Markets,” 2022, Fertilizer Dealer Report. Copyright 2022 by Bloomberg L.P.

But the question is, why have these world events been causing NOLA pricing to drastically increase? To better understand, we will discuss the many variables related to this, including increased demand, weather, natural gas, crops, and freight.

COVID/Increased Demand

When COVID started in late 2019/early 2020, travel came to an abrupt stop. Many people stayed at home and spent their travel and entertainment budgets on their properties. The summer of 2020 saw an exciting boom for the lawn care industry and all those who supported it. More people invested in taking care of their home lawns. That meant more fertilizer bags purchased and applied.

Another spike in demand came from the golf industry. Looking for a fun, social distancing activity, many grabbed their clubs and took to the course. Rounds of golf increased dramatically. Tee-times were nearly impossible to secure at public facilities. More rounds meant more revenue, more spending, and more fertilizers and turf care products being purchased to take care of busier properties. This continued into 2021 and looks to be continuing into the summer of 2022 as well.

In the beginning, the NOLA increase was directly related to supply and demand. More products were needed, and Manufacturing plants struggled to keep up. This led to material availability issues, which is when fertilizer prices first began to rise. 

Bad Weather

The years 2020 and 2021 proved to be trying times when it came to weather events. There were 20 separate billion-dollar weather and climate disasters in 2021, just two shy of the record set in 2020. Among the notable events, a cold-air outbreak across the central U.S. from February 10–19 brought frigid temperatures, snow, and ice from the Plains to southern Texas. It was the coldest event across that region in more than 30 years, causing power outages for nearly 10 million people. With that came frozen pipes across Texas, which caused major disruption at chemical plants. Chemical plants that manufacture ingredients for everything from surfactants to turf chemicals, to the polymers used in coating fertilizer. Several fertilizer companies have struggled with manufacturing. Blenders and distributors had to wait many weeks to get goods and materials.

Then, just when Texas started to get back on their feet, Hurricane Ida made landfall on August 29th in Louisiana. More than 1 million residents, including all of New Orleans, were without power. As we discussed earlier, this location is right by the port of NOLA. Being that New Orleans is the entryway to the Mississippi River, shipments were delayed and fertilizer manufacturers in that area were shut down.

During these weather events, prices rose, and in some cases, doubled or more. For example, urea went from $230/ton in September of 2020 to $550/ton in September of 2021. Then a month later, in October, it was at $700/ton.

A Natural Gas Shortage

Then comes Russia. When Russia invaded Ukraine, it was quickly apparent that this war was sure to threaten the global supply of fertilizer and gas. Why is gas so important when it comes to fertilizer? It’s because it takes natural gas to make urea. Urea is made under a high-heat and high-pressure process, and natural gas is necessary to complete this process. Over 80% of the world's ammonia production goes toward the synthesis of fertilizers such as urea. Natural gas accounts for up to 80% of the cost of producing it.

So, when you hear the fertilizer industry concerned about gas prices going up, it's typically related to natural gas (although gasoline prices can affect freight as well, which we’ll discuss later). Since Russia is the second largest supplier of natural gas to the world, without their supply, the demand drastically increased, and prices started to climb (Figure 2).

Figure 2. Natural Gas price year over year. Adapted from “Business Insider,” 2022, Natural Gas Price Today. Retrieved April 14, 2022, from https://markets.businessinsider.com/commodities/natural-gas-price. Copyright 2022 by Insider Inc. and finanzen.net GmbH (Imprint).

 Soaring Crop Prices

As natural gas prices drive up fertilizer prices, they also drive up the prices of crops such as corn and wheat. These are the two heaviest users of nitrogen fertilizer. When prices are high (like they are now), farmers tend to fertilize more so they can increase yields and make more profit from their crop. See Figure 3, which compares corn ton prices to NOLA.

Crop prices are also affected by the war in Ukraine. Known as the breadbasket of Europe, Ukraine is a large global supplier of wheat, as well as corn and barley. Without Ukraine's ability to harvest and export crops during wartime, countries will look to the United States and other parts of the world to replace those missing acres. This will drive up crop prices (and fertilizer demand) even higher. Although U.S. growers have had a slow start this year due to weather, this should be an important growing year for farmers.

Figure 3. NOLA and Cornbelt Urea comparisons. Adapted from “Green Markets,” 2022, Fertilizer Dealer Report. Copyright 2022 by Bloomberg L.P.

Freight

For truckload shipping, the price of gas can greatly affect the cost of a bag of fertilizer. When the price of gas surges at the pump, the additional cost of delivering products gets distributed to each item on the truck. Thus, drastically increasing prices.

Shipping availability also affects freight costs. When COVID hit, many countries, like China, went into lockdown, forcing the closure of many ports. Some ships became stranded, and some countries wouldn’t allow workers on or off ships, fearful of spreading the virus. So, ships sat, and they stacked up in the ocean, reducing shipping and container availability and increasing freight around the globe. Figure 4 shows how container freight rates have climbed over the past two years. It’s the reason why cars, TVs, and clothes shipped from overseas all cost more.

Figure 4. Global container freight rate index from January 2019 to March 2022. Adapted from “Statista,” 2022, Global Container Freight Index 2022. Content retrieved April 19, 2022, from https://www.statista.com/statistics/1250636/global-container-freight-index/. Copyright 2022 by Statista.

Conflicts like war have an impact on freight as well. The Black Sea, located near Ukraine, plays host to many major ports but has been almost at a standstill since the war began. Since urea is often transported through the Black Sea, this has led to another global source of fertilizer shut down. 

Weather events like Hurricane Ida also damaged a few barges in the U.S., reducing the availability of transportation for raw materials. Heavy rains also created higher water on the rivers, which slowed transportation. Sometimes even shutting down the waterways completely.

The rail transportation system’s efficiency has unfortunately been on the decline for years. There is very heavy congestion on rail lines because it often costs less to ship materials like grain, coal, and metals across the country instead of trucking them (especially when fuel prices are higher). Recently, to minimize congestion, the Union Pacific railroad asked 30 companies to reduce shipping by 20%. One of which was CF Nitrogen, a major player in the urea space. To maintain revenue, this has caused CF and other companies to export more urea overseas. Recently, there was an $80 spread over NOLA urea if companies exported to Europe. This takes tons out of North America, depleting supplies and driving up prices.

Future Forecast

Is there an end in sight to the high fertilizer prices? Hopefully so, but there is concern in the industry that it may never get back to the pre-Covid prices. At the end of the 2022 first quarter, urea and raw material prices had started to soften slightly (see Figure 1). This trend seems to be in line with the crop planting season. Typically, the crop cycle drives higher prices in early winter while demand for fertilizer increases to prepare for the planting season. Then fertilizer prices wane once crops are in the ground. The turf and ornamental industry are just a small player (roughly 1%) in the global fertility market, most heavy demand fluctuations are driven by agriculture.

Container freight will remain high for the near term as shipping availability continues to recover. Trucking and gas prices are thought to stay high until the Russia/Ukraine war settles out. Sanctions will most likely stay in place, so lower prices for fuel may not be available for quite some time. Prior to the war, Russia was a large global exporter of fertilizer. Even though the U.S. only imported about 9% of fertilizer from Russia, other countries like Brazil import a significant amount. This reduction in supply will likely affect prices in the U.S. due to the global interconnectedness of the fertilizer industry.

Those in the industry are rumored to feel that by the middle of the third quarter, urea might fall to the $600/ton range, with other nutrients assumed to decrease as well. However, that’s still high compared to pre-COVID standards, and supplies will remain tight for several months. China, which was the second largest exporter of nutrients in 2020, stopped exporting urea before the Olympics and, in July of 2021, ordered major Chinese fertilizer companies to stop to ensure domestic supply and reduce their prices. If China starts to export fertilizer, that would be a positive and help to soften prices globally.

Solutions to Fertilizer Pricing Instability (and improved profitability)

Unfortunately, the instability in the fertilizer market has affected many budgets and profits for green industry professionals. However, even though market fluctuations are out of the green industry’s control, there are solutions available that can still increase profits and improve your bottom-line. How? By adjusting your current turf and ornamental management program and innovating the way you fertilize. In 2016, Allied Nutrients (formerly known as KOCH T&O) was the first to develop a model to clearly illustrate how incorporating more nutrients and proven fertilizer technologies (EEFs) into your bag can greatly reduce your operating costs and improve profitability. This is known as the "What’s in the Bag" model. As depicted in Figure 5, you can see that by increasing the nitrogen and XCU™ (or EEF, enhanced efficiency fertilizer technology) slow-release fertilizer in the bag, you can cover more acres with fewer bags (leading to less plastic waste), use less labor and operating costs, and reduce your fertilizer expenses. Overall, greatly increasing your profitability AND bottom-line.

Figure 5.  “What’s in the Bag” illustration.  From Allied Nutrients.

To further explain, let’s analyze the blends in Figure 5, all with the same 2:1 N to K ratio. Each bag is blended with the industry's trusted slow-release nitrogen technology, XCU™, and with the addition of iron. For the math, all three bags will be applied at the same rate of 1 lb. of nitrogen per 1,000 sq. ft., a common rate in the turf industry.

The first bag is a 16-0-8 priced at $20.00 per bag. When you do the math (1 lb/0.16), you’ll get a rate of 6.3 lbs of material per 1,000 sq. ft. At this analysis, to cover 100 acres you’ll need to transport (or store) and apply 549 bags at a total cost of $10,980. 

Now let’s increase the analysis to a 24-0-12. Since we’re adding more nutrients to the bag, the price will increase a bit to $25.57 per bag. However, now that the bag has 24% nitrogen, you only need 4.2 lbs per 1,000 sq. ft. to reach the same 1 lb. of nitrogen per 1,000 sq. ft. At this analysis, you will need 366 bags to cover the same 100 acres, which results in fewer bags to transport and apply as well as reducing your overall cost to $9,359. 

Finally, let’s increase the nutrients in the bag to formulate a 32-0-16 blend. Again, the price per bag increases slightly; the nitrogen per 1,000 sq. ft. stays the same, but your labor, operating costs (including transportation), plastic waste from excessive bags, and total fertilizer expense are all greatly reduced. With a 32-0-16 analysis, you only need 271 bags to cover the same 100 acres which reduces your total cost of fertilizer to $8,425 — increasing your profitability and nutrition applied to your turf, resulting in exceptional, healthy turf.

Many green industry professionals typically buy a bag of fertilizer based on price, stock availability, or an analysis they have become comfortable with using for years. But buying by price or habit could be negatively affecting your budget or profits. A basic fertilizer analysis will contain NPK; nitrogen, phosphorus (in starters), and potassium, as well as any micronutrients like iron (Fe). But there is also something in the bag that many do not pay enough attention to, which is filler. Filler can be a lot of things, but often it is ground up limestone (rocks), which provides virtually no nutritional value to your turf or ornamentals, see Figure 6. Why spend your money or time buying and applying rocks? By reducing or eliminating your filler, you can greatly improve the return on your fertilizer and labor investment. Plus, by increasing the amount of enhanced efficiency fertilizer in your bag like the XCU™ slow-release fertilizer depicted in Figure 6, you will also greatly improve the appearance and health of your turf.

Figure 6.  “What’s in the Bag” illustration with a focus on filler comparisons.  From Allied Nutrients.

As you can see, the reason the 16-0-8 is the least expensive blend is because almost half the bag is filler (rocks). Essentially, with this amount of filler, you will have to spread almost twice as much material to properly feed your turf. That means twice as much labor carrying and cutting open bags; more fuel to deliver the product to each property; more fuel to spread the product; more plastic bags to dispose of; and more wear and tear on your equipment. Filler costs you time and money and does nothing for the health of your turf and ornamentals. As you reduce or remove the filler in the bag, you improve your ROI and increase the nutrition that contributes to the health of your turf.

Next, let’s talk about the percent of slow-release nitrogen in your bag. The more slow-release technology that you apply, the longer the application will last, allowing your turf to stay green and healthy, longer. A higher percentage of slow release in your blends can also allow you to reduce applications, which in turn saves you labor and operational costs. As shown in Figure 7, you can see the difference between a 30% slow-release technology in the bag and a 70% slow-release, which will feed for 21 days, or up to 65 days, or longer.

Figure 7.  A graph that illustrates how the percent of enhanced efficiency fertilizer technology affects the longevity of nutrition.

Last, another solution to reduce fertilizer and operating costs and increase profitability is to utilize fertilizer technologies with extended longevities. There are enhanced efficiency fertilizer technologies like DURATION CR® and TTRU™ controlled-release urea that offer 45, 60, 90, 120 and 180 day extended nutritional release. By incorporating a more extended fertilizer technology in your bag, you can reduce a round of application without sacrificing results. With one less round, you can reduce your travel, gas, and labor expenses to successfully maintain a property and use this time to add an additional service for your customers and increase your annual revenue.

With fluctuating fertilizer prices looking to continue, now is the time to seek solutions and to innovate your fertility management program. Not only will this ensure improved profitability in the interim, but it will also greatly improve your profits and revenue for years to come.

For questions on how to innovate your current turf management program, contact one of Allied Nutrients many qualified account managers today.