The past two years have seen global fertilizer markets plagued by Black Swan event after Black Swan event.  Record high values have been set, volatility not seen in the history of fertilizer and enormous amounts of risk have all contributed to where we are today, a market whose only constant is that of uncertainty. There are those in the market that are hoping for calmer markets.  Unfortunately, that does not appear to be the case and hope is rarely a winning strategy. While I cannot provide calmer waters, I can at least provide context to why the markets are the way they are.

Nitrogen

As is typically the case, global nitrogen markets have experienced the most price volatility of any major fertilizer product on the market.  Part of the reason for this widespread volatility has had to do with an ever-changing focus on what is important to buyers and sellers.  That changing focus is why it is so important to know what is driving price ideas so that one can have a bit of an edge moving forward. While the current cycle has several theories, our view is that it is the European natural gas market that is driving price ideas.  As the chart below shows, the correlation has been solid since early 2021.

“With Europe accounting for approximately 8% of global urea capacity, 20% of global UAN capacity and 8% of global NH3 capacity, the loss of production is real.”

The reason for the correlation is quite simple: the lack of natural gas supplies from Russia to Europe have caused futures to skyrocket to a point where most European nitrogen producers have stopped production.  With Europe accounting for approximately 8% of global urea capacity, 20% of global UAN capacity and 8% of global NH3 capacity, the loss of production is real. Unfortunately, it seems that volatile times are here to stay.  The Russia/Ukraine conflict continues to date.  Russian natural gas exports remain highly restricted and there seems to be no immediate end in sight.

Phosphate

While the focal point for the global nitrogen market may be Europe, phosphates have been primarily focused on Chinese exports…or lack thereof. Since late last calendar year, the Chinese government has highly restricted the export of phosphate fertilizers.  As the world’s leading exporter, this has created a significant shortfall in global inventories which saw global values rise throughout late March and early April.

Since that time, global values have been steadily declining.  Part of this was due to much poorer demand across the Northern Hemisphere.  With prices much higher than normal from a historical point of view, farmers responded with much lower demand than originally anticipated.  The other significant factor has been the Chinese government loosening their export restrictions.  While still far from normal levels, the increase in exports helped to depress price ideas.

There remains significant questions that need to be answered going forward that will help determine the fate of the market.  Values are still significantly higher when compared against historical norms. However, grain prices are also elevated so how global farmers respond will dictate how the market evolves.

Potash

Potash is no different in that this complex global fertilizer boils down to relatively few points. The first and most important continues to be Lithuania blocking Belarusian exports due to their participation in Russia’s invasion of Ukraine.  Back in February, Lithuania officially blocked all Belarusian potash shipments through their country which meant they were cut from the world.  What followed was force majeure on sales that were already made and the removal of 20% or 7MMT per year of global potash exports.

Second has been global demand cuts at these higher values.  Like phosphates, famers across the Northern Hemisphere responded to historically high potash values by cutting application rates which cut overall demand.  This push back has allowed price ideas to fall around the world, though how long this trend will occur remains to be seen.

Reason for worry going forward

The high price of fertilizer has caused farmers around the world to be reluctant and delayed in stepping forward for their fertilizer needs.  Aussie farmers are dealing with the same situation but have a logistical hurdle that few others must contend with:

• 2 – 3 weeks vessel sail time arriving from Indonesia (nitrogen)
• 3 – 4 weeks vessel sail time from Asia/Russia (nitrogen/phosphate/potash)
• 4+ weeks vessel sail time from Middle East (nitrogen/phosphate)

Australia must plan their fertilizer needs earlier than most regions around the world.  That, combined with the risk of current high prices, means that supplies cannot be assumed to just arrive out of thin air.  To reduce the chance of product availability hiccups, farmers should consider having more conversations about their upcoming needs with their supplier.  This will give them the best opportunity to know what to plan for in the coming cycles.

Editor: Josh Linville, StoneX