High agricultural input costs are poised to reduce corn and soybean output, which in turn will lower the demand for nitrogen fertilizer and drive natural gas prices higher, according to a Monas Financial analysis. The research thesis suggests that as farmers face escalating expenses for fertilizer and fuel, they will be forced to reduce their planting acreage or switch to less input-intensive crops. This reduction in planting activity directly decreases the total volume of corn and soybeans produced. Because corn and soybeans are major inputs for nitrogen fertilizer production, a decline in crop output significantly reduces the demand for that fertilizer. Consequently, the demand for natural gas, a primary feedstock for nitrogen fertilizer manufacturing, is expected to fall. This shift in the supply-demand dynamic for the agricultural sector is projected to place upward pressure on natural gas prices.
Source: SEC EDGAR daily Form 4 filing index, 2024-06-20
What would change this read
This outlook would be invalidated if corn and soybean yields increase by more than 5% year-over-year, or if natural gas inventories remain at record highs, as either scenario would suggest that farmers are not being constrained by high input costs or that fertilizer demand remains robust despite lower crop production.
