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Logic says that demand for fertilizer should be soaring as North American farmers look to increase production at a time when grain prices are near record highs thanks to the severe reduction in exports from the Ukraine and Russia.

Logic, however, looks to be wrong. An article in the Financial Times on June 4 reports that demand for fertilizer is falling in response to record prices. Farmers faced with higher costs for everything from fertilizer to diesel fuel are feeling themselves squeezed in spite of higher grain prices. So they’re buying less fertilizer and shifting away from crops such as corn that require heavy fertilizer use and toward crops such as soybeans, that require less fertilizer. U.S. farmers, the Financial Times reports, have told the U.S. Department of Agriculture that they intend to plant 4% fewer acres with corn this spring and boost the number of acres dedicated to soybeans.

The impact is going to be even heavier in the developing world where higher costs will force some farmers to leave crops unfertilized or to abandon planting.

All this is likely to result in smaller global harvests than you would expect at a time of record farm prices.

Farmers get only about 16% of every dollar spent on food by U.S. consumers. That means smaller harvests and higher costs for farmers will have relatively muted effects on food price inflation. The drivers there will retain higher costs for transportation from the farm and in the food processing network and higher costs for packaging driven by higher oil prices

That’s the good news, I guess.

This perspective does explain why fertilizer stocks are down recently. In the last month shares of The Mosaic Company (MOS) are off 6.78%. Shares of Nutrient (NTR), once upon a time Potash of Saskatchewan, are down 11.12% in the last month. (Nutrien has been a member of my long-term 50 Stocks Portfolio since December 30, 2008. The stock is up 264% since then as of the close on June 7.)