Fertilizer prices will surge to new highs in 2022, continuing the trend that began in 2021. Both phosphate and potassium surged to record highs in his April due to war damage, higher gas prices, Chinese export problems and higher crop prices.
“Agricultural commodity prices hit a record high in Q2 2022 as grain prices surged in the aftermath of the war in Ukraine. Both Russia and Ukraine are major global grain producers,” FocusEconomics 2023 commodity Outlook read.
“But prices have since fallen sharply on the back of slowing demand and a July deal that lifted Russia’s blockade on Ukrainian agricultural exports.”
In the second half of 2022, a collapsing demand has reduced the consumption of both phosphate and potash by 10% to 40%, pushing down prices.
Increased production from Canada also eased some of the supply tensions stemming from the war and reduced shipments from China, which was reflected in lower prices.
Focus Economics panelists expect agricultural prices to “remain above pre-pandemic levels in the next few quarters[on a downward trend]amidst slowing demand.”
The report continued: “Supply tightness will support prices. Even if the export deal with Russia is maintained, Ukrainian grain production will be undermined by the war, and fertilizer prices will fall this year. Higher prices could reduce crop yields in 2023,” he said.
Demand is projected to shrink, but soil quality has not improved, and fertilizers are essential for healthy and lush growth, which can hinder crop yields. Inflation could increase the cost of food, which has risen in recent months.
Price Phosphate Supply Challenge Catalyst
After rising to an all-time high of over US$1,000 per tonne (MT) in April, phosphate prices have fallen significantly in the second half of 2022.
Crop additives started the year higher at USD 713 million and continued to rise until April when concerns over Russian and Ukrainian grain and fertilizer exports peaked.
The phosphate market was further affected when China suspended exports until June to ensure sufficient domestic supply.
“Because of government-imposed barriers, China’s fertilizer exports fell sharply in 2022. These barriers are expected to persist in 2023, although some easing is expected as global and domestic prices fall. expected,” said the CRU 2023 Outlook Report. Note.
Phosphate exports from China will exceed 10.7 million tons in 2021, falling to 5.4 million tons in 2022, according to the CRU. The consultancy expects he will recover somewhat in 2023, with shipments reaching 6.7 million tonnes.
Each year, China is the largest producer of phosphates, with 85 million tons of production in 2021, while Russia ranks fourth, producing 14 million tons in the same year.
By the end of June, the price had fallen to a level of USD 789.
The price of high fertilizer prices
Phosphate prices ended the year below their January opening, but the true cost of the record rise is yet to be felt.
The International Fertilizer Association estimates that 85% of the world’s soils are deficient in nitrogen, 73% in phosphorus (phosphate) and 55% in potassium (potassium).
This shortage makes fertilizer essential for crop growth. To combat the significant increase in overhead costs, many farmers have chosen to limit the amount of fertilizer they purchase and use. This is expected to affect soil health and yield.
“The fertilizer supply and price crisis is in many ways more worrying than direct food inflation, because it could hamper food production in other parts of the world, ultimately leading to Russia and It could help fill the slack caused by stalled grain deliveries in Ukraine,” said Maximo Torello, chief economist at the United Nations Food and Agriculture Organization (FAO). Reuters.
FAO’s chief economist at the United Nations explained that this would eventually have a knock-on effect of pushing up the cost of food.
“Rising fertilizer prices may cause farmers around the world to cut their planned yields and the amount of land they are planting, putting them at risk of lower yields in the 2022/23 harvest season and a shortage of imported grains. In addition, food security could be at even greater risk,” he said.
Demand for wheat is projected to reach new highs in 2023 as the global food system slips into insecure territory.
“The recent increase in global wheat demand for food is largely driven by population growth and changes in diets and incomes,” said EIU economists. I have written“Ongoing population growth in parts of Africa and Asia will support further expansion in 2022/23, with food use projected to reach a record high of 546 million tonnes.”
Potash Market Full of Uncertainty
Similar to the 2022 phosphate story, potash faced many of the same hurdles.
“When it comes to production capacity, potash is certainly the most exposed to turmoil from both Russia and Belarus compared to other major fertilizers,” said Humphrey Knight, chief potash analyst at CRU. told INN.
Russia and Belarus will produce a combined 17 million MT of potassium in 2021, placing second and third respectively on the top list of potash producing countries.
“Before 2022, both countries accounted for about 40% of global supply. Exports from both countries, especially those from Belarus, faced turmoil in 2022, but products flowed to many downstream markets. We continue to do so,” said Knight.
Muriate of potash (MOP) – the most commonly used form of potash and a more affordable form compared to sulfate of potash – launched in 2022 at USD 221 per MT.
The conflict in Ukraine and sanctions against Belarus pushed prices up to US$562 in March, the highest since February 2009.
The MOP price remained at US$562 for the rest of the year.
Potash sanctions hamper supply growth
Phosphate prices fell in the second half of the year, but potash prices remained elevated due to continued supply concerns. Concerns that supplies will be further depleted by Russia’s invasion of Ukraine heightened the impact of sanctions targeting Belarus’ potash exports, which were implemented in 2021.
“[Russian]trade sanctions have designated a ‘carve-out’ of the food and fertilizer sector to avoid negative impacts on global food security,” read a January World Bank blog post. “These carve-outs have allowed Russia to continue exporting fertilizers. It’s declining.”
Picking up some of that slack is Canada, with the country’s potash producers beginning to ramp up production.
To balance the supply challenge, many market watchers looked to Canada, a major producer.
“Canada’s largest producers, Nutrien (TSX:NTR,NYSE:NTR) and Mosaic (NYSE:MOS), have previously paused, at least in part in response to supply disruptions in Russia and Belarus. We are maintaining plans to resume production capacity,” Knight said.
But as Knight went on to explain, 10 months of persistently high prices destroyed demand in the potash market.
“Mosaic saw only a slight year-on-year increase in potash sales in the first nine months of 2022, and Nutrien confirmed that potash sales declined during this period,” he said. . “Despite the supply disruption, demand is weak and as a result Canadian producers are unable to take advantage of the supply gap.”
Tech investment may help the market
Knight expects the 2022 price spike to have a lasting impact on farmers.
“Some spot prices will reach record highs in 2022, and this has made potash affordability very unfavorable to consumers,” he said. have significantly reduced their consumption of potassium, weakening global demand.”
As farmers use less fertilizer, many have started experimenting with nutrient efficiency and product fortification, which could increase in the future, according to the CRU.
“With tight capital markets and ample cash balances for fertilizer producers, 2023 could be the year to ‘roll the dice and buy companies with new patented plant nutrition technologies’. there is. Outlook read.
Following a collapse in demand in 2022, Knight believes the sector can regain lost demand if prices retreat.
“The potash market is certainly subject to further disruptions in production through 2023, and supply could tighten rapidly if demand recovers quickly from the current slump,” he said.
“However, demand is likely to pick up more slowly (in 2023), meaning supply will remain ample,” CRU’s lead analyst concluded.
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Securities Disclosure: I, Georgia Williams, have no direct investments in any of the companies mentioned in this article.
Editor’s Disclosure: Investing News Network does not guarantee the accuracy or completeness of information reported in interviews it conducts. The opinions expressed in these interviews do not reflect those of Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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