Over the long term, corn prices and nitrogen-based fertilizer prices seem to display a relationship. (DTN chart using USDA data
When we look at a chart of fertilizer prices plotted alongside a chart of corn prices, we immediately spot a pattern and assume there is a strong, predictable relationship. Prices were relatively high for all of the above when the U.S. planted upwards of 95 million acres (ma) of corn. From July 2012 to July 2013, nearby corn futures prices averaged $7.22 per bushel while dry urea fertilizer had a price tag around $588 per ton, liquid anhydrous fertilizer fetched $842 per ton and UAN28 was $387 per ton.
Prices then dwindled in a mostly synchronous fashion while the profitability and popularity of planting corn dwindled. In 2017, when U.S. farmers barely planted more than 90 ma of corn, the calendar-year average for nearby corn futures came to $3.59 per bushel, dry urea was $336 per ton, liquid anhydrous fertilizer was $458 per ton and UAN28 was $230 per ton. In other words, corn prices dropped by roughly half over those four-and-half years, while fertilizer prices simultaneously dropped 40% to 45%.
Interestingly, fertilizer prices have recently rallied. DTN collects roughly 1,700 retail fertilizer bids from 310 locations weekly, and from a low last fall (September/October) to the start of the 2019 planting season, urea prices are now 13% higher and anhydrous prices are 24% higher, moving from $480 per ton to $597 per ton (U.S. average) last week. Liquid anhydrous ammonia is consistently the cheapest way to purchase nitrogen. On a per-pound basis, those anhydrous prices have moved from 29 cents per pound of nitrogen to 36 cents per pound of nitrogen.
Corn prices haven't followed along with that fertilizer rally of the past six months. Nearby futures were roughly $3.60 last fall and they're roughly $3.80 now, a bump of about 5%. Yet when we look at that chart of the two markets moving together, we see the long-term pattern and our brains start to think, "Hmm. Shouldn't we expect corn prices to catch up with the shift in fertilizer prices?"
Unfortunately, no -- not necessarily. These two markets (corn and nitrogen-based fertilizer) are indeed strongly correlated. But correlation does not equal causation. Even without getting into the math, we can already logically figure out that fertilizer prices are likely dependent on corn prices (over the long term) and not the other way around. When the demand for corn-growing inputs rises, the price of nitrogen fertilizer likely rises (all else being equal). However, a rise in the price of any input -- whether it's nitrogen fertilizer, seed, land or borrowing money -- does not necessarily follow-through to a higher price received for corn.