Nitrogen fertilizer prices have declined during the economic calamity surrounding the coronavirus outbreak, though they haven’t dropped as much as oil prices.

The price per short ton of urea — a staple form of nitrogen that drives the fertilizer market — dropped from about $280 in early April to about $230 in early May along the Gulf of Mexico wholesale market.

Farmers pay higher prices for urea, depending on the transportation and storage costs of their suppliers.

However, that’s not a major departure from the average $260 per short ton of urea seen roughly a year ago, and still quite a bit higher than the trough of $170 per short ton seen in mid-2017.

Meanwhile, the price per barrel of crude oil has plummeted by roughly two-thirds since the beginning of the year.

“Urea and oil, there is a long-term relationship but that link seems to be broken at the time,” said Chris Yearsley, director at the Profercy fertilizer market analysis firm.

Two months ago, Profercy noted that urea seemed immune to the economic woes that had severely impacted energy markets and global economic growth.

Since then, though, the profound economic uncertainty gripping the world has prompted fertilizer dealers to adopt a “hand-to-mouth” approach to buying urea, taking only as much as immediately needed, Yearsley said.

“In short, no one wants to be left with stock at the end of the season,” he said.

Although the bearish economic outlook hasn’t helped urea prices, it’s the peak planting season across much of the U.S. and farmers ultimately still need fertilizer, Yearsley said.

The recent decline in nitrogen prices isn’t exclusively related to the global pandemic, at least not directly, he said.

A major change since March, when urea prices were healthier, is that China has begun exporting more fertilizer, he said.

Weaker domestic demand among agricultural and industrial buyers has Chinese manufacturers looking overseas to sell urea, Yearsley said. “When China is exporting, the market tends to be oversupplied.”

Another major nitrogen fertilizer, urea ammonium nitrate or UAN, has experienced reduced prices due to anti-dumping tariffs the European Union has imposed on the product from Russia and Trinidad, he said.

“That’s caused those suppliers to direct their tons to the U.S.,” Yearsley said.

The future prospects for nitrogen prices will depend on the interplay between demand — which is driven by planted acreage — and the cost of feedstocks needed to produce fertilizer, he said.

When natural gas in the U.S. or coal in China is cheap, manufacturers can afford to keep producing urea even when the product’s prices are lower, he said.

“We need to see what actually happens,” Yearsley said.

CF Industries, a major U.S. nitrogen producer, expects it will produce and sell fertilizers at volumes consistent with previous years.

Though fertilizer prices have dropped, the company has a “substantial cushion” of profit because its U.S. manufacturing facilities have low costs for natural gas, said Tony Will, the company’s president and CEO, during a recent conference call with investors.

“It’s been pretty clear there have been some massive dislocations in the energy market,” Will said.

During the first quarter of 2020, CF Industries has sold about $971 million worth of fertilizer, down from $1 billion during the same period last year, even while its sales volume has increased to 4.7 million tons from 4 million tons of product, according to its financial results.

The company’s first quarter net income in 2020 has decreased to $68 million from $90 million in the first quarter of 2019.

While favorable weather allowed for earlier fertilizer applications this year, CF Industries is seeing fertilizer dealers take a “just in time” strategy toward buying nitrogen products, Will said. “You’re seeing a lot of back-to-back purchases because they don’t want to be holding material.”

As is common in commodity markets, though, low prices are expected to eventually bottom out due to production curtailments.

Softer nitrogen prices will probably stop planned manufacturing plants from being built and reduce output from existing facilities in areas with high feedstock costs, he said.

“You’re going to see supply contract in areas of the world that are a little higher cost, which is exactly where it should contract,” Will said. “The longer you see the global hangover effect, the longer you’ll see those supply-side restrictions.”

Low profit margins also may convince some manufacturers to defer needed maintenance, which will eventually lead to “break and fix issues” that further constrain supplies, he said. “It could be a cascade effect over the next couple years.”