While geopolitical conflicts often take the balme for volatile nitrogen fertilizer prices, decades of deep industry consolidation- driven by natural gas costs- may be the true underlying factor. Henrique Monaco, a Ph.D. candidate in agricultural economics at the University of Illinois, said the current volatility in nitrogen fertilizer prices can’t be blamed entirely on the ongoing geopolitical situation.
Monaco said the U.S. is very dependent on potassium imports- mainly from Canada- but it is more self-sufficient in nitrogen and phosphate.
Monaco said that, with natural gas being the primary input for fertilizer production, any movement in their prices is directly affecting U.S. fertilizer production.
Since 2000, the industry has experienced heavy consolidation. Monaco said a small group of firms controls the majority of the country’s ammonia production capacity as a result.
Monaco added that the U.S. Department of Justice uses a number index to assess industry concentration, and the fertilizer industry is classified as highly concentrated.
In the fertilizer industry, competition is driven primarily by production costs. As a result, lower-cost producers tend to outlast and absorb higher-cost competitors, making consolidation a natural outcome in a mature commodity market. Consequently, fewer, larger producers control the majority of the market and play a major role in determining fertilizer price trends.
