Fertilizer market volatility raises pricing questions

As planting and the early growing season drew to a close, fears over potentially significant fertilizer shortages did not come to fruition. But questions regarding price volatility did. 

Significant reductions in pricing, perceived by some to be conveniently timed after many growers paid for product, has led to accusations of unfair pricing practices south of the border. 

However, fertilizer analysts say it’s just the latest visible symptom of a supply chain reeling in the face of global destabilization. 

Why it matters: Supply and demand continue to play a crucial role in fertilizer markets, despite significant and ongoing volatility.

Many compounding factors brought the fertilizer market to its current position, says Ken McEwan, professor of production economics and agribusiness at the University of Guelph, Ridgetown campus. Fertilizer prices going into the winter of 2021-22 were already high, nearing double the cost for some products and largely due to the price of natural gas. Natural gas is responsible for approximately 80 and 65 per cent of production costs for ammonia nitrate and urea, respectively.

Production and delivery disruptions inflamed availability and timing issues. Hurricane Ida temporarily cut production in Texas and surrounding states by half. The COVID-19 pandemic continues to stifle product movement.

China stopped exporting phosphorous and nitrogen. Russia invaded Ukraine. Canada, the United States, and other countries imposed duties and tariffs on Russia and Belorussia for the invasion.

McEwan says all these things made it hard to predict spring outcomes and had suppliers scrambling to ensure adequate stocks.

“I think in general things have worked out. Prices are still high, depending on product,” he says. “By and large, the availability problem was able to be resolved. People have been pretty fortunate to have their fertilizer plan work out. The question now becomes the sustainability for access to fertilizer in 2023.”

Why sudden price drops?

In late May, Bloomberg news reported that the price of ammonia nitrate dropped from $1,400 to $1,000 per tonne, which left many farmers wondering how that could happen.

Josh Linville, fertilizer director for StoneX in Missouri, says its largely because of adequate supply amid less demand.

Linville says spring did not play out as expected for much of the northern hemisphere. High fertilizer prices caused a large reduction in American corn acreage. Many growers also cut back in their fertilizer programs. Unfavourable spring conditions were another factor.

Additionally — and contrary to what many predicted — Russia is exporting significant quantities of fertilizer.

“India and Brazil are buying from them. There’s still tons coming to North America,” says Linville. He described the 30 per cent price drop in ammonia nitrate as unique and says as a nitrogen product, it is prone to demand-induced swings.

McEwan says post-planting price reductions have fueled conspiracy theories in the United States and spurred investigations into alleged unfair pricing practices and industry consolidation. But from the evidence he has seen, lack of competitive pricing seems unlikely.

“It raises more questions than it answers. Getting concentrated doesn’t mean there isn’t competitive practices. People are looking for reasons, and I think to a large extent it’s supply and demand.

“Whether it should be a 30 per cent difference, I cannot comment. There’s a general impression in the United States, but the evidence hasn’t pointed there at this point.”

Predictability part of a bygone age

Linville says volatility and surprises are now the name of the game. The reliable predictors used by analysts, suppliers and growers are part of a bygone age.

“There’s just nothing normal about the days we’re living in from a fertilizer perspective. Comparisons over the last five years aren’t really fair. It’s not doing the market justice,” he says.

“These are the times where being a newbie into the system is a benefit. They’re not wracked by historically thinking that’s going to skew their view. While we focus on our own operations, we need to remember we’re part of a world market…It’s going to be very easy to focus on our area, so we have to remember to lift our heads once in a while.”

McEwan has a similar view.

“It still comes down to energy costs, softening demand. I view nitrogen, phosphorus and potash as global commodities that are traded. These things are pretty fluid in an interconnected world.

“This uncertainty in the world, when you trade at a macro level —w I can only imagine trying to organize a ship, get insurance from Lloyd’s of London, and to get that out of the Black Sea.