How the Russia-Ukraine war fueled record fertilizer prices

The price of fertilizer, which is among the biggest expenses for farmers, hit record highs in the spring of 2022 after Russia, the world’s top fertilizer exporter, invaded Ukraine in February. The war between Russia and Ukraine exacerbated an already tight global supply situation that had begun in 2020 with COVID-19-related worker shortages and factory closures, the first of several disruptions that led to volatility in the fertilizer market.

In response to economic sanctions imposed by the international community, Russia halted hundreds of exports. While fertilizer exports were not explicitly banned, Russia’s Ministry of Industry and Trade recommended that fertilizer manufacturers temporarily halt exports of their products amid shipping issues. Russia later announced more fertilizer export restrictions that will last until May 2023 to ensure a sufficient supply for domestic farmers. In addition, shipping companies, as well as Western finance and ship insurance companies, have turned away from Russia amid international financial sanctions and security concerns. The result was that global and US fertilizer prices rose to record levels by March 2022. According to the World Bank, global fertilizer prices had risen 30% by early 2022 immediately after an 80% increase in 2021.

The figure below shows that the Bloomberg Green Markets Weekly North American Fertilizer Price Index hit an all-time high of 1,270.4 on March 25, surpassing the previous record of 932.3 set in 2008. The index is based on in the reference prices of three fertilizer ingredients: nitrogen, phosphorus and potassium, collectively known as NPK.

Fertilizer use varies significantly by crop and soil. On average, it accounts for 36% of operating costs for US corn growers and 35% of operating costs for US wheat growers. Soybeans require less fertilizer and account for only 10% of the operating costs of that crop. More than 50% of farmers surveyed in August by Purdue University’s Center for Commercial Agriculture said higher input costs were their biggest concern for the upcoming crop year, while 12% of respondents reported that the availability of inputs was their main concern. In fact, the increase in fertilizer prices this spring led some farmers to reduce fertilizer use or change their crop mix. More farmers may do so next year if the outlook for grain and oilseed prices weakens.

The interconnectedness of the world fertilizer trade

Synthetic fertilizers have helped triple world grain production since the 1960s. But producing fertilizer components, such as nitrogen, requires resources such as natural gas and others. Some components, such as phosphorus and potassium, are extracted. Only a few countries have the right mix of ingredients and access to natural gas to produce fertilizer cheaply. China, Russia, the US, India and Canada are the world’s five largest fertilizer producers, while Russia, Canada, the European Union, China and Belarus are the world’s five largest exporters.

Disruptions that helped upend the global fertilizer cart

Disruptions began to occur in the global fertilizer supply chain in mid-2020, when COVID-19 produced labor shortages that hampered natural gas production. Further outages occurred in February 2021 after a severe freeze engulfed the southern US plains and froze natural gas wells. In late August 2021, Hurricane Ida struck the southern US, once again affecting natural gas and fertilizer production. Last fall, China, the world’s largest phosphorus exporter, implemented quotas limiting international shipments of the nutrient that were initially scheduled to end in June 2022. quotas were recently extended until the end of the year and possibly until mid-2023.

The war between Russia and Ukraine has also disrupted natural gas flows. Russia halted natural gas exports to Bulgaria and Poland in April, followed by Finland and the Netherlands in May and Latvia in early August. It also reduced flows to the rest of Europe, causing spikes in natural gas prices in Europe that led to at least 10 of Europe’s fertilizer plants to close or reduce production only in July 2022.

improvement movements

Several events over the summer eased supply pressures and lowered fertilizer prices. For example, the US International Trade Commission voted on July 18 to reject substantial antidumping and countervailing duties on imports of urea ammonium nitrate, or UAN, a key nitrogen product, from Russia and Trinidad and Tobago. In 2021, 80% of US UAN imports came from these countries.

On July 22, Russia and Ukraine signed separate agreements with Turkey and the UN that cleared the way for Ukraine to export grain and other agricultural products while ensuring Russian food and fertilizer had access to world markets. The agreement, which expires in November after 120 days but can be renewed, included Russian guarantees that it would not attack Ukraine’s Black Sea port facilities. In mid-August, the first ships loaded with wheat started from the Black Sea portsand some fertilizer shipments from Russia had also resumed.

Repercussions of the fertilizer price shock

The Russian invasion of Ukraine in February 2022 exacerbated already tight global fertilizer supplies, pushing prices to record highs in March. While certain amelioration measures have eased some of the price pressure on US farmers, volatility in the natural gas market is likely to keep fertilizer prices high for some time.

Given supply shortages and the uncertain geopolitical situation, US farmers looking to quote or reserve their fertilizer needs in advance for next year’s crop are finding that suppliers have increasingly shifted to a pricing structure. just in time. Additionally, both farmers and suppliers are moving towards more formal contracts that go beyond handshakes or verbal agreements.

Meanwhile, the fertilizer price crisis has sparked interest in high-tech precision application tools and equipment that reduce the amount of fertilizer required, as well as biotech solutions such as nitrogen-producing microbes that can add nutrients to the soil without need for natural gas. during production.

notes

1. London-based CRU International’s Fertilizer Price Index hit a weekly record high of 390 on March 25, 2022well above the previous record of 360 set in 2008.
2. Watch the September 2022 Purdue University/CME Group Agricultural Economics Barometer report for additional survey results.
3. See the report of June 30, 2022 Impacts and repercussions of price increases on the world fertilizer market from the US Department of Agriculture.
4. Please refer to the June 2022 document “An Examination of Recent Fertilizer Price Changes (PDF)” from the Iowa State University Center for Agricultural and Rural Development.