It’s no secret that the fertilizer market is volatile right now. This article will examine the state of urea specifically—why it matters and how your company can respond proactively.
Significance of Urea
Urea is a common, typically affordable source of nitrogen for fertilizer. The United States imports urea, produced from natural gas, from Europe. That’s where recent global events come into play.
Natural gas prices have a huge impact on urea prices. The production factor of natural gas to urea is 37, meaning the cost to produce a ton of urea is 37 times the price per ton of natural gas. This equation doesn’t even include markup or fixed costs, so you can see how quickly the increases in natural gas prices can raise urea prices.
State of Urea
Europe is experiencing a natural gas crisis right now. Prices are increasing as the supply shrinks due to several factors.
Russia is a significant factor, as the country controls much of the natural gas supply in Europe. Informal sanctions have limited the natural gas supply to other parts of Europe since the war in Ukraine began earlier this year. At the beginning of September, Russia closed the Nord Stream pipeline, limiting natural gas supply even further. Historically, Russia has also been a significant exporter of urea itself. This year’s events have increased natural gas and urea prices in Europe and around the globe.
To quantify the impact of the European natural gas crisis on urea, compare the cost of urea production in Europe with domestic production. In the US, a ton of natural gas recently averaged $8.50. Multiply that by 37, and you have a $315 ton of urea. In Europe, a ton of natural gas recently averaged $60. Multiply that by 37, and you have a $2,220 ton of urea.
The US is a net importer of urea, but domestic producers have been exporting more than normal as Europe seeks more affordable urea options. Compare recent urea exports to those in 2021: In July and August of this year, the US exported about 500,000 tons of urea. That’s almost as much as total urea exports in 2021, which were 750,000 tons.
Logistics issues continue to drive up prices as well. Last year, Hurricane Ida devastated Louisana and disrupted imports into New Orleans, an international container port that is the US trading center for urea. The natural disaster also delayed freight transportation of imports to other parts of the country.
Lastly, rising inflation is driving up prices on commodities like corn, which has a more direct impact on fertilizer prices than you might expect. As the price of a crop increases, so does the number of farmers who want to grow it. Therefore, the demand for fertilizer increases and brings fertilizer prices up with it. In the case of a crop like corn—which is considered a grass and needs nitrogen inputs like turfgrass—farmers and turfgrass professionals are demanding the same nitrogen (urea) inputs. Historically, agriculture can secure those inputs before the green industry, adding pressure on turfgrass professionals.
Green Industry Response
Now that you understand the reasons for increasing urea prices, you can better understand why your company’s costs may have gone up in recent months. Your bottom line may already reflect the pain of these increases. With continued price increases expected, you can do a few things to prepare for the future.
First and foremost, order early to lock in pricing before further increases take effect. We have early order programs designed to help you get the most out of your budget. Sometimes, it even makes financial sense to rent a storage unit for products you won’t use until next year. The money you save by not paying next year’s prices can make up for the cost of a storage unit for the winter. Your Valley Green representative can help you run the numbers and make the most of early order this fall.
In addition to taking advantage of early order, Labor Efficient Programs (LEPs) help offset rising prices. LEPs require fewer applications than traditional programs, allowing companies to make fewer property visits. Decreased labor and fuel costs will benefit your bottom line now more than ever.
Lastly, the current market may require charging more for your services. Although no one wants to raise prices for their customers, transparency goes a long way in helping property owners understand why increases are necessary. Explain the market pressures described above, and be sure to express your commitment to serving your customers for the long term. You may be surprised how receptive they are to an honest conversation.