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A fertilizer shortage has added to growing concerns about the impact of war in Ukraine on the price and scarcity of some staple foods.
Together, Russia and Belarus provided about 40% of global potash exports, according to Morgan Stanley. Russian exports have been hit with sanctions. In addition, in February, a major Belarusian producer declared force majeure – a statement that he would not be able to fulfill his contracts due to forces beyond his control.
Russia also exported 11% of the world’s urea and 48% of ammonium nitrate. Russia and Ukraine together export 28% of nitrogen and phosphorus fertilizers, as well as potassium, according to Morgan Stanley.
Disruptions to these shipments due to sanctions and war have caused fertilizer prices to skyrocket. High grain prices are rising even further.
“It’s a huge problem,” CF Industries CEO Tony Will said during a recent appearance on CNBC. He said global fertilizer supplies are very limited. CF manufactures and distributes fertilizers.
“It’s a confluence of factors, unprecedented demand coupled with a huge drop in supply availability, just exacerbated by the war in Ukraine and what’s happening with exports from Russia and Ukraine” , added Will.
A contributor to higher costs and shortages
“This is all a double whammy, maybe even a triple whammy,” said Bart Melek, global head of commodity strategy at TD Securities. “We have geopolitical risk, higher input costs and basically shortages.”
“Agriculture is absolutely going to be affected. In the case of Canada, it’s good for Saskatchewan, which is the largest potash producer in the world, but farmers are going to be affected because they’re going to pay a lot more per acre. “, Melek said. “They’re going to get a lower return just because they’re saving, especially in emerging markets.”
Grain shortages will drive up the cost of staple foods and other staples. “It is going to lead to higher input costs to produce everything from grains, wheat and corn. Input costs are higher now because you are going to have a shortage which will also drive up prices,” said Melek said. Meanwhile, prices for cows, steers and pork bellies have also risen significantly, he added.
Some fertilizers have more than doubled in price. For example, Melek said potash traded in Vancouver was priced around $210 per metric ton at the start of 2021, and is now valued at $565. He added that urea for delivery to the Middle East traded at $268 per metric ton on the Chicago Board of Trade in early 2021 and was valued at $887.50 on Tuesday.
Will said CF Industries is running its factories around the clock, forgoing some maintenance work and trying to expedite shipments to areas in need. “There are no new tons to be made. It’s just about trying to get them to market as quickly as possible,” he said.
Just as the price of fertilizers has jumped, the price of agricultural raw materials has also soared, amid fears of shortages.
“We absolutely have a problem of catastrophic proportions here,” Will said. “Not only is the problem the lack of availability and affordability of nutrients and inputs, but Russia and Ukraine have historically exported around 30% of the world’s wheat trade and 20% of the world’s corn trade.” He added that there are stocks of these products which do not reach the market because the Black Sea is closed.
Wheat futures prices for July were down slightly on Wednesday. They rose about 4% on Tuesday due to concerns over Ukraine but also worse than expected US harvest conditions. Corn futures prices are up nearly 30% since the start of the year and fell slightly Wednesday at the Chicago Board of Trade. Soybean futures prices were also slightly lower.
Morgan Stanley expects grain prices to remain above last year’s levels through 2023.
“Before the war in Ukraine, the dry weather of [Latin America] brought inventories to levels that would already keep grain prices high,” Morgan Stanley analysts wrote in a report.
“The war adds uncertainties related to Ukrainian corn/wheat supply and, more importantly, fertilizer use and global yields,” they said. “For this reason, our staple crop price scenario implies a 2-3% reduction in yields in higher cost regions, with risks of greater disruptions depending on fertilizer availability and weather conditions. »
Morgan Stanley analysts said they expect higher prices in 2022 and 2023, but after that they expect stocks to normalize with greater supply from Latin America. They also expect prices to align more with production costs and fall 15-20% below longer-term contracts for soybeans and corn.
Melek said corn is up 57% in 2021 and could be volatile this year, averaging 25% up on the year. Prices for live cattle rose 19% last year and could gain another 15% in 2022. Wheat rose 27% in 2021 and could climb another 22% this year, he said.
Melek said the high prices were due to tight supplies and shortages.
“We’re talking about an erosion of food security on a scale we haven’t seen in a long time, and I think it will affect low-income people in North America,” he added. Melek said farmers will likely consider rotating into less fertilizer-intensive bodies and save on the amount of nutrients they use.
“Consumers are also going to make choices,” he said.
Fertilizer production relies on natural gas, and that has made a difference for US producers. According to Morgan Stanley, the biggest buyers of the three main types of fertilizers are Brazil, India, the United States and China.
“Being a North American producer is huge for us. We pay between $5 and $6 per million British thermal units. [MMBtu] natural gas,” said Will of CF. “Europe is paying $35-38 per MMBtu… That’s a huge gap between low-cost production, and that’s one of the reasons the price of fertilizer is what it is. It’s not just a lack of availability, but high cost producers are very expensive.”
For some farmers, high-priced or unavailable fertilizers will mean crops may not be fed as much this year. In turn, returns could be lower.
“In close contact with a number of our customers in Latin America, we will start exporting on a humanitarian basis just to bring nutrients there to a region which is a rich growing area but also lacks nutrients in this moment,” CF Testament said.