There is a standoff in the global fertilizer business between fertilizer makers who have large supplies of high priced product and users who won’t buy until the price comes down, says a fertilizer producer executive.
“It is basically a game of chicken, a global game of chicken,” said John Malinowski, vice-president of development and marketing at J.R. Simplot Agribusiness.
“No one wants to buy because prices are going down, systems are filling up and I don’t know what that is going to mean.”
Speaking at the Agri-Trend Farm Forum event in Saskatoon Nov. 28, Malinowski said the stalemate will likely be broken by the price of grain. If it stays low, fertilizer values will have to fall but if grain rises, fertilizer does not need to be strongly discounted.
Read Also
China’s grain imports have slumped big-time
China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
“Prices (of fertilizer) will be commensurate with crop prices,” he said in an interview following his presentation.
Fertilizer prices at the point of production have already fallen since demand crashed in the late summer and early fall.
The Market, a newsletter produced by Fertilizerworks.com, reports that urea prices at the U.S. Gulf of Mexico peaked in late July at $815 to $825 US per tonne. DAP prices basis Tampa, Florida peaked a week or so later at $1,170 to $1,222 per tonne.
By Nov. 20, urea had fallen to $245 to $255 and DAP had fallen to $550 to $600.
The fall in grain prices during August set up the collapse, but it was India that set it in motion, Malinowski said.
While China is both the largest producer and user of fertilizer and is a significant exporter of some crop nutrients, India, the second largest user, is not self-sufficient in any product and must import huge quantities.
India’s government subsidizes the cost of fertilizer to farmers and the run-up in prices had become a major burden, Malinowski said.
“Their subsidies of fertilizer went from $2 to $3 billion two years ago to about $25 billion over the course of last year. The fertilizer subsidy budget was actually higher than the defence budget.”
Because of the cost and importance of the imports, India is a savvy buyer and it sensed that the market was setting up for a fall.
“India is very aware of world trade and what is happening. They sensed that there was a bit of a backoff in demand globally. They sensed that producers could be put into a difficult position and India quit buying. They just backed off the market and basically the whole world followed.”
Inventory rapidly began to build and fertilizer producers have begun to curtail production.
Fertilizer storehouses are full of product bought when prices were higher and farmers don’t want to buy it because grain prices are down and they believe fertilizer retail prices will have to fall.
“The system is jammed whether at the retail side, the manufacturers’ side. It is absolutely jammed and there is all different levels of pricing out there.”
Modest retail price decreases are now appearing on the Canadian Prairies and some producer groups have banded together to import cheaper product from Russia.
But Malinowski said the market uncertainty is not yet resolved and there likely won’t be a major change until grain price direction becomes clear. The timing of that will have implications for fertilizer supply and pricing.
“If grain prices keep going lower, it (fertilizer production curtailment) probably won’t be a problem because demand will be off enough that we’ll be OK. If grain prices bounce, watch out, because there won’t be enough fertilizer, because of the curtailments, to supply the demand.”
The worst situation would be for grain prices to rally close to Northern Hemisphere spring seeding. Farmers would want fertilizer to maximize yield but supply would be inadequate because of a lengthy period of low production, he said.
As for when global fertilizer prices reach a floor, the signal will likely come from India. If it starts buying, that likely means the market has bottomed out.
The Market notes that nitrogen and DAP prices have been steady from mid to late November and Middle East producers have lined up urea sales to India at about $260 this month, the same as late November prices.
Last spring, China imposed costly tariffs on fertilizer exporters to ensure strong domestic supplies, but it is working on a new regime that will lower tariffs in periods of low domestic demand to allow producers there to export. That could push new product on the market in December and January, acting as a lid on prices.
While agriculture and fertilizer markets are in a period of flux, Malinowski believes that in the longer term, population growth and increasing prosperity in Asia will continue driving the need for increased food production and, in turn, increased fertilizer demand.
