Supply constraints keep fertilizer prices high
KANSAS CITY – Inputs designed to increase crop production, yields and quality are not immune to volatility and high prices, the two common threads running through the 21 sessions of Sosland’s 45th Annual Procurement Seminar Publishing Co. in early June. For the first time, a breakout session at the seminar was dedicated specifically to fertilizers with the expectation that prices will remain high for some time.
Andy Spahr, vice president of wholesale at The Andersons, Maumee, Ohio, educated Fertilizer 101 attendees, discussed the impacts of the Eastern European fights on the fertilizer market, and released insights from price.
“As this market has gone crazy, people have realized how global the fertilizer market is, the fact that we really rely on other parts of the world, a lot of friendly places and less friendly places in the current environment” , Mr. Spahr said. said. “To make a lot of what we use in North America and also around the world, a lot of the fertilizer production is in places that have natural resources in the case of potassium and phosphates, and who then have the economic ability to access those resources and ship them to them.”
The two mined materials, potash and potassium, each have industrial applications competing for supplies. Along with nitrogen, which is made primarily with natural gas, these are the main active ingredients in fertilizers. Cheap (usually) natural gas fuels a robust domestic nitrogen market that sufficiently supplies the United States with essential plant protein and stimulates tissue formation. This is what makes newly coated wheat look neon green from an overhead perspective. American supplies are supplemented by imports which are a function of trade flows and arbitration. There is interest in expanding U.S. nitrogen capacity, but a recent Biden administration plan to increase U.S. nitrogen production has fallen far short, Mr. Spahr, because a proposed investment of 500 million dollars would not even cover the technical study of a new nitrogen plant. between 3 and 5 billion dollars.
“We can do more of that in the United States, build more factories if we wanted to, control more of our own destiny,” Spahr said.
Increasing the production of phosphate used to support photosynthesis, plant growth and development is less feasible at the national level. It is mined from phosphate rock, treated with sulfur and ammonia in Florida and Idaho, and used in many agricultural, industrial and energy processes. But the resulting product is not competitive in the global market.
Saskatchewan, Canada is a major supplier of potash or potassium in North America, which enhances crop quality as it protects crops from disease and extreme weather conditions and has industrial applications. The world’s major potash players – Belarus, China, Russia and Ukraine – supply palm oil-producing countries, particularly those in Latin America.
As the supply base for global crops and the basis of fertilizer demand, the value chain is producer-centric, Spahr told the audience of buyers and sellers, millers and ingredient and food manufacturers. The fundamental structure on the crop side is the reverse of the fertilizer market, he explained. In the first case, central demand from a broad base of producers shrinks as crops move through the supply chain to a narrow base of end users. For fertilizers, the product begins with a limited group of extractors and manufacturers who sell to a larger distributor base who spread supplies even wider to retailers and then to the farmer or industrial user.
This narrow point of origin for fertilizers “is where all the pricing power exists, especially when you start layering anti-dumping, countervailing, sanctions and trade restrictions.” said Mr. Spahr. “That’s a key difference in how these markets work and part of the reason there’s so much opacity around fertilizer prices and how they work.”
Drawing on recent market history, Spahr said many forces had intensified a “perfect storm of mounting pressure” even before Russia began massing troops along its border with Ukraine. . In 2020, the U.S. International Trade Commission imposed significant anti-dumping and countervailing duties on phosphates from Russia and Morocco and on urea and ammonium nitrate for nitrogen production from Trinidad. and Tobago and Russia. Limited supplies were further exacerbated by a polar vortex, Hurricane Ida and sanctions against the world’s second largest potash exporter, Belarus, after the Ryanair Flight 4978 incident, all in 2021. Noting the limited supplies, China halted fertilizer exports.
When Russia attacked Ukraine in February, the resulting sanctions had a major impact. Russia was the world’s largest exporter of urea, ammonium nitrate, ammonia and urea-ammonium nitrate, and the world’s third largest exporter of potash. The European Union shifted ammonia imports partly to the United States, which further restricted domestic supply. Fertilizers have fallen from 30% of the variable cost of agricultural production in 2020 and 2021 to around 45% in 2022, he said.
What should U.S. growers expect in input markets for fall 2022 and 2023?
“I think that means things are going to be quite expensive because it all works out, and it’s not a six-month thing, it’s extended,” Mr Spahr said, “Going forward, we We will see the market adapt to the new pricing paradigm over the next period, especially if crop prices remain high.”
Sanctions, tariffs and export limits, justified or not, disrupt fairly efficient global trade flows, he said. The abrupt shift from relatively low fertilizer prices will potentially drive the bottom of the cost curve, especially for mined commodities, as miners spend more to obtain harder resources. The tight global grain supply and demand position will also help keep prices high, as crop prices are highly correlated to fertilizer prices, he said.