Evolution in the relationships among nitrogen fertilizer, corn, and natural gas prices

Abstract

The U.S. fertilizer industry has experienced several market-changing events over the past several years, such as the shale gas revolution, increased global demand for biofuel, mergers between fertilizer producers, and supply chain disruptions. In this paper, the relationships among fertilizer, corn, and domestic and international natural gas prices are examined, with five structural changes detected. Pass-through estimation and time-series analysis are used to examine the impact of corn and domestic and international natural gas prices on anhydrous ammonia and granular urea prices. The results show that fertilizer prices respond to both input and output price changes. The shift in natural gas prices is highly related to fertilizer price changes before July 2013 and after May 2020. Domestic gas prices were the major contributor in the early period, while the impact of international natural gas prices intensified when they substantially rose. Corn price changes affected fertilizer prices during the biofuel boom and after the merger of large fertilizer producers in 2010. Anhydrous ammonia price changes, in turn, have Granger caused corn prices since September 2016. The results from a market power model are inconclusive, as some of the underlying assumptions are not met during the time period of analysis.