Another Oil Crash-Related Windfall: Falling Fertilizer Prices

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The interesting thing about the current crash in oil prices is that it is a two-edged sword. On the one hand, you have more and more Americans feeling like they had a tax cut or a bonus because they had to pay less at the pump. This, of course, spells good news for the broader American economy. When people have more money to spend, the economy prospers. On the other hand, this is debatable. A large chunk of the savings actually gets saved or is used to pay off debt. Some economists are arguing that not enough Americans are using this oil ‘windfall’ to pump-prime the rest of the economy.

Be that as it may, increased disposable income due to lower oil prices is generally a good thing on the consumer end. On the producer end, however, this can be bad news. There are jobs affected when oil prices are very low. Take the case of the State of North Dakota and Texas. More and more oil workers are being laid off due to low oil prices. As more oil rigs are decommissioned, expect the job losses to mount.

One positive development from the decline in oil prices is the fall in fertilizer prices. Here is the reason why.

Petroleum-Based Urea is Crucial for Large-Scale Mass Agriculture

Agriculture is highly dependent on petroleum-based fertilizer. To grow crops, you need three key nutrients: nitrogen, potassium, and phosphorus. Urea is a great source of nitrogen, and it can be synthesized from petroleum byproducts.

Since the price of crude oil has crashed, the base price for petroleum-based urea has decreased as well. This is great news for large scale mass agriculture. This reduces overall crop prices. However, this benefit is uneven. This is better news for developing countries.

Developing countries usually have less efficient agricultural infrastructure, which leads to higher food prices. In the United States, however, where agriculture is extremely efficient and there is a very efficient transport system, this is not so great news. In fact, the problem with U.S. agriculture is decreasing food commodity prices as farmers produce more and more food. Still, on a global basis, the decrease in fertilizer prices is a positive development.

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