Biofuels Feeder Crops May Be Affected by Skyrocketing Fertilizer Prices

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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--A growing number of refineries are being updated to accommodate more green-spectrum diesel--the umbrella term covering both biodiesel and renewable diesel. This means the need for biofuel feedstocks, such as soybeans, will increase greatly by 2030, according to market experts, requiring farmers to boost production significantly in the intervening years. However, market forces and land availability issues are pushing back on those requirements--and since the fall of 2021, a new issue has cropped up.

The availability of feedstocks for all types of fuel is affected by a variety of cost factors, and biofuels, such as those on the green diesel spectrum, are no different. Oil and gas costs in 2022 are rising for drilling rigs, frack crews, frac sand, payrolls and almost everything else. These are among the factors slowing down production increases, despite higher oil and gas prices.

For biofuels, a cost that was previously a fairly predictable given has become a source of great stress since the fall of 2021: fertilizer. This is another area where such fuels compete with food crops, and farmers in both areas are scrambling to cover rising expenses.

While almost all current inflation is blamed on the Russian-Ukrainian conflict--oil and gas leading that pack--fertilizer increases started ramping up in the fall of 2021.

The USDA's Economic Research Service (ERS) reported in October 2021 that rising natural gas prices were largely responsible for fertilizer price increases. Gas is tied to fertilizer because it is "a primary input in nitrogen fertilizer production," said the report. It further says, "U.S. farmers use three primary forms of nitrogen fertilizer: anhydrous ammonia, urea and liquid nitrogen. ERS estimates an annual price increase of 235% for anhydrous ammonia, 149% for urea, and 192% for liquid nitrogen."

A further push on fertilizer prices has come from economic sanctions that have reduced as much as one-fifth of fertilizer ingredient exports. One example is the sanctions placed on a major Belarusian potash producer.

Adding to the shortage is the fact that China, the world's leading fertilizer exporter, has halted those exports to assure sufficient domestic supply.

Fertilizer costs account for 15% to 36% of a crop's up-front investment, with soy requiring significantly less nitrogen than corn. Where those prices have doubled or nearly tripled, it will require hard decisions for farmers, not only in the U.S. but across the globe. As with other supply-chain items, delivery times are uncertain. This is expected to affect crop yields in such soy-leading nations as the U.S., Brazil and elsewhere.

The American Farm Bureau Association's website notes that precision application methods have somewhat reduced the amount of fertilizer used per acre, levels that peaked around 1980-81. The rest of the world, however, has greatly increased fertilizer demand, dropping the U.S.'s percentage of total fertilizer use from 25% in the 1960s to only 10% today. Combined with the fact that America must import two important ingredients, nitrogen and potash, this puts the U.S. at the mercy of international demand and prices.

So how will all this affect crop yields for soy, camelina, carinata and others in the near future? The numbers are disturbing as the U.S. strains to meet expected refinery demand for green-spectrum fuels, including biodiesel and renewable diesel. Some farmers are thinking of fertilizing less, which would decrease per-acre crop yields.

An example: Brazil, one of the world's top soy growers and exporters, is expected to cut its fertilizer use by 20%, which could reduce crop yields by 14%, according to Brazilian industry consultancy MB Agro.

One mitigating factor is that soybeans require less fertilizer, especially nitrogen, than corn--the latter a key ingredient in both food and ethanol production. Because of that, many farmers in the U.S. Midwest and Deep South are considering switching to soybeans. This would be good news for soy diesel refineries, but could pose problems for food, cattle feed and ethanol production and prices.

On the world stage, these higher costs are leading to price increases for ethanol, renewable diesel and bio diesel. In a sort of domino effect, some governments have since January reduced their required amounts of biofuel mixes, in order to reduce fuel costs amid rampant worldwide inflation. As of this month, the International Energy Agency has revised down its predicted biofuels usage estimates for 2022 for the U.S., Brazil, Europe, and the Asia & Pacific regions.

European regulators, it reports, have or will reduce blending requirements due to high biofuel prices. "For instance, Finland will lower blending obligations by 7.5 percentage points, on an energy basis, in 2022 and 2023," the IEA said.

In April, the U.S. Senate began consideration of the Renewable Diesel and Sustainable Aviation Fuel Parity Act of 2022, designed to encourage more domestic production of such fuels. It remains to be seen whether this passes and whether its implementation will increase domestic production.

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