Fertilizer prices seen as unlikely to reach again in the near term the record-high hit in 2022

Fertilizer prices, influenced by the cost of natural gas that is a key feedstock to produce synthetic plant nutrients, may not reach their Russia-Ukraine War-related historical price peaks of 2022 in the near future. That is unless unforeseen events impact supply, a fertilizer expert with Gro Intelligence that discussed global fertilizer supply, demand, and prices said in a mid-2023 interview.

Image courtesy of Schauhil, Pixabay

Fertilizer prices reached a historic high in May 2022 but as of mid-2023 have declined. Those 2022 highs followed restricted supply and surging European natural gas prices that led to curtailed production and logistics after the start the Russia-Ukraine war, on Feb. 24, 2022. The war continued as of mid-2023.

Cutbacks in European nitrogen production resulted in a key catalyst driving record-high prices internationally, said Connor Hyde, fertilizer analyst with Gro Intelligence, in a telephone interview on July 21, 2023, while discussing pricing. Gro Intelligence provides information related to agriculture, climate and the economy, and has published The Global Fertilizer Impact Monitor.

A return to last year price levels could be possible if there is any unforeseen event, like for example was the case in 2021 with Hurricane Ida that penetrated inland hitting waterways around the Mississippi River that are critical for fertilizer transportation, Hyde said. Export restrictions from producer countries are another unknown variable, he added.

“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,” Hyde 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,” Hyde 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 "restricted shipments 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,” Hyde 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 Mississippi River, 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´ve seen,” Hyde 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, and to strong crop prices,” Gro Intelligence´s Hyde said.

Seasonal pricing

In the U.S., fertilizers are normally applied twice per year, in the fall (an application period after the harvest) and then another one in the spring (from April to June), Hyde said.

“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,” Hyde added.

“We´ve seen prices definitely come off. They remain above historical values but they are very much off from the highs that we saw last year,” Hyde said.

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,” Hyde 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 is also a major importer during this time of year,” Hyde said.

Because of these 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 South America, India, and even Southeast Asia to gauge global demand trends," Hyde added. 

Fertilizer prices correlation to natural gas

Nitrogen, and products that are upgraded from anhydrous ammonia, are "currently very dependent on natural gas supplies and prices. Natural gas and atmospheric nitrogen are currently key feedstocks 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,” Hyde said.

“Ammonia is also used to produce di-ammonium phosphate and mono-ammonium phosphate, which are bulk phosphate fertilizer products. Changes in natural gas prices globally can have a substantial trickle-down effect into nitrogen fertilizer prices just due to how each product is produced and the reliance on ammonia as a feedstock,” Gro Intelligence´s Hyde added.

Affording and sourcing fertilizer were challenges to many world farmers in 2022. In the developing world, the high spot prices and difficulties to source fertilizer hit particularly hard those countries that lacked synthetic fertilizer production capacity.

Top industry executives had anticipated supply tightness back in 2021.

 By Renzo Pipoli