Fertilizer prices reached a historic high in May 2022 but as of mid-2023 have declined. Those 2022 highs followed restricted supply and logistics as a result of the start the Russia-Ukraine war, on Feb. 24, 2022. The war continued as of mid-2023.
“With the way that the market is set up right now I don’t foresee prices coming back to where they were last year. The market has adjusted pretty well,” said a source familiar with both the U.S and international fertilizer markets and pricing.
However, a return to the peak of last year could be possible if there is any unforeseen event, like for example was the case in 2021 with Hurricane Ida that penetrated inland hitting fluvial waterways around the Mississippi River that are critical for fertilizer transportation. Export restrictions from producer countries are another unknown variable.
“Natural disasters like what we saw happened with Hurricane Ida hitting in the U.S. or further government intervention in other major supply origin is something you cannot rule out,” the source said.
Hurricane Ida made landfall on Aug. 29, 2021 not far from the mouth of the Mississippi River in Louisiana. As a category 4 hurricane, Ida tied two previous hurricanes (Laura in 2020 and Last Island in 1856) as the strongest on record ever to hit the state.
2023 prices down from peak last year
“Prices are coming off from the peaks that we saw last year,” the source said. The rise occurred amid the Russia-Ukraine War and as two large global exporters, China and Russia, restricted exports.
Export controls in the Black Sea “almost shut off shipments coming out of the area or coming out of the region. But before the war broke out, there was in the U.S. a hurricane that went right up around the New Orleans port that really had an impact to the U.S. barge transportation and logistics system,” the source said.
Fertilizers and grain are heavily reliant on river barges for shipment north for distribution along the Mississippi River, “where they can access warehouse and storage terminals on the Arkansas rivers, on the Illinois river, on the Ohio river, and that hurricane hit at a time that really disrupted transportation and restricted supplies (…) kicking off the year-long inflationary period that we seen for more than a year,” the source added
“We are starting to see prices come down but they remain above the ranges prior to that hurricane mainly because you still have a world adjusting to restricted volumes out of Russia and out of China,” the source said.
Seasonal pricing
In the U.S., fertilizers are normally applied twice per year, in the fall (an application period after the harvest) and the another one in the spring (from April to June), the market source said in the last week of July.
“We are on the other side of that key demand period so prices have come down because demand has receded and this is around the time when prices tend to reset lower for several reasons one of which is to entice retailers and wholesalers to commit to volumes from major producers, traders, for the upcoming fall or spring,” the source said.
“We have seen prices definitely come off. They remain above historical values but they are very much off from the highs that we saw last year,” he added.
Global fertilizer supply and demand
Besides the U.S., other key demand areas for fertilizers are “India, Brazil, Southeast Asia and Europe being kind of the major hubs to monitor mainly because they consume quite a bit. You can even include Argentina in that mix and Australia due to the wheat crop,” the source said.
In terms of supply, Russia and China with their respective natural gas and coal-fired capacity are major producers. The Middle East and Africa are also major suppliers.
The U.S. is also a major producer and Europe is also normally a major producer, though in 2022 saw some capacity offline because natural gas prices surged in Europe leading to fertilizer production there being curtailed.
Of the countries with sizable enough imports to impact global pricing, “Brazil tends to start importing their main fertilizer products like urea, like map (monoammonium phosphate) and like potash, and India also starts importing around this time,” the source said.
Because of this seasonalities, while during the first and second quarters the U.S. is a major influencer of global prices, “once you get into the third quarter and onward attention turns to Argentina and Brazil in terms of gauging global demand, and you can even point to southeast Asia,” he added.
Fertilizer correlation to oil and gas
Nitrogen and products that are upgraded from anhydrous ammonia, are “very dependent on natural gas. You need natural gas and you need atmospheric nitrogen as feedstock to produce anhydrous ammonia which is a fertilizer in itself but ammonia is also a feedstock for urea, for ammonium sulphate, for ammonium nitrate, and for UAN, also known as urea, ammonium, nitrate,” the source said.
“Ammonia is also used to produce di-ammonium phosphate and mono-ammonium phosphate, which are bulk phosphate fertilizer products, so changes in natural gas prices globally in the U.S. or around the Black Sea, and as we saw last year, in Europe, can have a substantial trickle-down effect into nitrogen and phosphate fertilizer prices just due to how each product is produced and the reliance on ammonia as a feedstock,” he added.
Affording and sourcing fertilizers were challenges to many world farmers in 2022. In the developing world, the high spot prices and supply tightness hit hard countries that lacked synthetic fertilizer production capacity. Bidding wars for fertilizers were reported in late 2021.
By Renzo Pipoli
