DAFRE faculty may want to assign this article to students to illustrate what happens when the supply curve in an agricultural market shifts upward, driven by an increase in the cost of a variable input.
The article identifies three causes for the recent increase in fertilizer prices: (1) the global shortage of natural gas, a key input into the production of fertilizer, (2) the impact of severe storms on fertilizer plants in the U.S., and (3) a restriction on the export of phosphate from China. One farmer reports that he is “paying more than triple the price for nitrogen fertilizer compared with last year.” Farmers will have the option to reduce the application of fertilizer on each acre of corn, or to shift acreage into less fertilizer-intensive crops like soybeans.
Interestingly, some farmers are claiming that fertilizer manufacturers conspired to raise prices in response to a boom in commodity prices (and farmer incomes) that predates the natural gas shortage. Industry representatives deny the allegation.
Note: DAFRE professor Gal Hochman has been involved in research into alternative methods of fertilizer manufacture that could significantly reduce the need for natural gas. See “Yes, we do chemistry!“