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Fertilizer shortages have raised concerns about the impact of the Ukraine war on prices and the shortage of certain staple foods.
Together, Russia and Belarus accounted for about 40 percent of the world’s potassium exports, according to Morgan Stanley. Russia’s exports were hit by sanctions. Furthermore, in February, a major Belarusian producer declared an uncontrollable influence – a statement that it would not be able to honor its contracts due to extremes over which it has no control.
Russia also exported 11% of the world’s urea and 48% of ammonium nitrate. Russia and Ukraine 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 more.
“This is a huge problem,” said Tony Will, CEO of CF Industries, in a recent statement on CNBC. He said that global fertilizer stocks were very tight. CF produces and distributes fertilizers.
“This is a combination of factors, unprecedented demand and a huge reduction in supply, which is only exacerbated by the war in Ukraine and what is happening with exports from Russia and Ukraine,” added Will.
Contributes to higher costs and shortages
“All of this is a double scandal, if not a triple scandal,” said Bart Melek, international head of commodity policy at TD Securities. “We have geopolitical risks, higher input costs and basically shortages.”
“Agriculture is going to be hit hard. In Canada, it’s good for Saskatchewan, the world’s largest producer of potassium, but farmers will be injured because they will pay much more per hectare,” Melek said. will get lower returns simply because they are optimizing, especially in emerging markets.
Grain shortages will increase the cost of staple foods and other raw materials. “It will lead to higher input costs for producing everything from cereals, wheat and corn. The input costs are higher now because you will have a shortage that offers the price too,” said Melek. At the same time, the prices of cows, steers and pork have also risen sharply, he added.
Some fertilizers have more than doubled in price. For example, Melek said that potassium traded in Vancouver was priced at around 210 dollars per ton at the beginning of 2021 and is now valued at 565 dollars. He added that urea for delivery to the Middle East was traded at $ 268 per tonne in the Chicago Board of Trade in early 2021 and was valued at $ 887.50 on Tuesday.
Will said CF Industries operates its factories around the clock, skipping any maintenance and trying to speed up shipments to areas in need. “There are no new tonnes to create. It’s just a matter of trying to get them there as soon as we can into the market,” he said.
Just as the price of fertilizer has risen, the price of agricultural products has also risen, due to fears of shortages.
“We are facing a catastrophic problem here,” said Will. “Not only is there a lack of supply and efficiency of nutrients and inputs, but Russia and Ukraine have historically exported about 30% of international wheat trade and 20% of international May trade.” He added that there are stocks of these commodities that do not enter the market because the Black Sea is closed.
Rising prices for wheat, corn and soy
The future of wheat for July fell slightly on Wednesday. They rose by 4% on Tuesday due to concerns about Ukraine but also due to worse-than-expected harvest conditions in the United States. Future corn prices have risen nearly 30 percent so far this year and fell on Wednesday in the Chicago Board of Trade. Future news soybeans were also slightly lower.
Morgan Stanley expects grain prices to remain above last year’s prices until 2023.
“Before the Ukraine war, the weather was dry [Latin America] went with inventory to a level that would already keep grain prices high, “Morgan Stanley analysts wrote in a report.
“The war adds uncertainty to Ukrainian maize / wheat supply and, more importantly, to fertilizer use and international harvests,” they said. “Because of this, our basic crop price scenario involves a 2-3% reduction in yields in areas where costs are higher, with the risk of more disruption depending on fertilizer and weather.
Morgan Stanley analysts said they expect higher prices in 2022 and 2023, but after that they expect stocks to return to normal with more Latin American supply. They also expect prices to be in line with production costs and fall by 15% to 20% for long-term soybean and maize contracts.
Melek said corn rose 57% in 2021 and could be volatile this year, averaging 25% higher this year. The price of live cattle rose by 19% last year and could increase by an additional 15% in 2022. Wheat increased by 27% in 2021 and could rise by an additional 22% this year, he said.
Melek said high prices were driven by tight stocks and shortages.
“We are talking about a deterioration in food security on a scale we have not seen for a long time and I think it will affect people in the lower income distribution in North America,” he added. Melek said farmers would probably consider switching to more fertilizer-intensive forces and would save on the amount of nutrients they use.
“Consumers will also choose,” he said.
Fertilizer production is based on natural gas and this has been crucial for US producers. The biggest buyers of the top three types of fertilizer are Brazil, India, the United States and China, according to Morgan Stanley.
“Being a North American manufacturer is huge for us. We pay somewhere in the region of $ 5 to $ 6 per million British units of heat [MMBtu] of natural gas, “said Will at CF.” Europe pays $ 35 to $ 38 for MMBtu … This is a huge difference in low-cost production and that’s one of the reasons why fertilizer prices are the way they are. Not only is there a shortage of supplies, but the animal producers are very expensive. “
For some farmers, the expensive fertilizer or unavailable fertilizer will mean that the crop will not receive as much nutrition this year. On the other hand, the return could be lower.
“In close contact with a number of our Latin American customers, we intend to start exporting on a humanitarian basis just to get nutrients down there to an area that is rich in growth but is also starving in nutrients now,” said Vilji CF.