Rising fertilizer costs adding pressure for local producers

ALBERTA -- Rising fertilizer prices are expected to reshape planting decisions for local ag producers this spring.

This comes as fertilizer costs have increased more than 30 per cent on account of recent closures in the Strait of Hormuz. The key trade corridor typically sees roughly one-third of the world's nitrogen-based fertilizer pass through its waters. Leigh Anderson -- economist with Farm Credit Canada -- says this has forced local producers to shift some acres toward lower-input crops or even take some marginal land out of production.

"We are seeing that spring wheat has the largest flexibility. Those swing acres total up to about 1.4 million acres across Canada, and about 7.4 per cent of those acres could be changed into other crops," said Anderson. "Canola has a smaller percentage of swing acres, but given the high number of acres to begin with, you could see around 740,000 acres swing in either direction."

Anderson predicts that many producers will elect to lean on canola over spring wheat due to its market resilience and due to the reduction of Chinese tariffs on Canadian canola seed exports. Historically, year-over-year changes in canola acreage have been modest, averaging 3.4 per cent, though even a typical shift can amount to more than 700,000 acres.

"There is more certainty there," said Anderson. "This is due to China lowering its canola tariffs this past winter, which has boosted producer confidence. We also have an expanding canola crush sector in Western Canada."

The rising cost of fertilizer is expected to favour lower-input crops while also increasing the likelihood of marginal land being left unseeded. Many producers will look to crops like corn, barley, flax, and soybeans, while acres of wheat, oats, lentils, and peas are expected to decline. It's believed that shifts in other crops are also possible. While none are major crops on their own, together they represent more than 2.5 million acres of potential swing acres that could still influence overall supply.

Lentil and durum acres are under pressure due to ample supplies and weaker prices, while pea acres are also uncertain. Oats and barley remain key wildcards. Oat acres have declined since peaking in 2022 at 3.9 million acres, but history suggests they can still surprise. Anderson says the rise in the price of fertilizer is expected to compound the pressures currently facing producers.

"It makes things even worse for anyone who was purchasing fertilizer at these elevated prices, so, almost all crops for the growing season ahead are looking at negative margins for most producers," said Anderson. "In some cases, including land costs, losing on average $50 to $60 per acre for the average producer."

Meantime, decisions to leave land unseeded typically depend on factors such as soil moisture, crop prices, and spring weather conditions. With higher fertilizer costs and tighter projected farm margins, unseeded acreage is a key area to watch this year. Another possibility is that some acres get turned into hay land for cattle.