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The shortage of fertilizers added to the growing concern about the impact of the war in Ukraine on prices and the shortage of some basic foodstuffs.
Together, Russia and Belarus accounted for about 40% of world exports of potash fertilizers, according to Morgan Stanley. Russian exports have been hit by sanctions. In addition, in February, a major Belarusian manufacturer announced a force majeure – a statement that it will not be able to fulfill its contracts due to forces beyond its control.
Russia also exported 11% of the world’s urea and 48% of ammonium nitrate. Russia and Ukraine together export 28% of fertilizers from nitrogen and phosphorus, as well as potassium, according to Morgan Stanley.
Failures of these supplies due to sanctions and war have led to the danger of fertilizer prices. High grain prices are rising even more.
“This is a huge problem,” CF Industries CEO Tony Will said in a recent speech by CNBC. He said global supplies of fertilizers are very limited. CF produces and distributes fertilizers.
“This is a confluence of factors, unprecedented demand combined with a huge drop in the availability of supply, which is only exacerbated by the war in Ukraine and what is happening with exports from Russia and Ukraine,” – added Will.
Contribute to rising costs and deficits
“All of this is a double, if not a triple hit,” said Bart Melek, head of global commodity strategy at TD Securities. “We have geopolitical risks, higher introduction costs and mostly deficits.”
“Agriculture will suffer completely. In the case of Canada, it’s good for Saskatchewan, which is the world’s largest producer of potassium, but farmers will suffer because they will pay much more per acre,” Melek said. because they are saving, especially in emerging markets. “
Grain shortages will lead to higher prices for basic foodstuffs and other commodities. “This will lead to higher production costs for everything from grain, wheat and corn. Introductory costs are now higher because you will have a deficit that also raises the price,” Melek said. At the same time, prices for cows, bulls and pork bellies have risen significantly, he added.
Some fertilizers have risen more than twice. For example, Melek said that potassium traded in Vancouver cost about $ 210 per metric ton in early 2021, and now it is valued at $ 565. He added that urea for delivery to the Middle East was trading at $ 268 per tonne at the Chicago Board of Trade in early 2021 and was valued at $ 887.50 on Tuesday.
Will said CF Industries operates its plants around the clock, refusing some maintenance and trying to speed up deliveries to areas in need. “You don’t need to produce new tons. You just need to try to get them there as soon as possible,” he said.
Just as fertilizer prices jumped, so did agricultural prices amid fears of shortages.
“Here we are absolutely facing a problem of catastrophic proportions,” Will said. “The issue is not only the lack and availability of nutrients and resources, but Russia and Ukraine have historically exported about 30% of world trade in wheat and 20% of world trade in corn.” He added that there are stocks of those goods that do not enter the market because the Black Sea is closed.
Rising prices for wheat, corn and soybeans
On Wednesday, wheat futures for July fell slightly. On Tuesday, they rose by about 4% due to concerns about Ukraine, as well as due to worse-than-expected harvest conditions in the United States. Corn futures prices have risen nearly 30% since the beginning of the year and fell on Wednesday at the Chicago Board of Trade. Soybean futures were also slightly lower.
Morgan Stanley expects grain prices to remain above last year’s level until 2023.
“Dry weather in Ukraine before the war [Latin America] have brought inventories to a level that would already maintain high grain prices, ”Morgan Stanley analysts said in a report.
“The war adds to the uncertainties surrounding the supply of Ukrainian corn and wheat and, more importantly, the use of fertilizers and world yields,” they said. “In this regard, our baseline scenario of crop prices assumes a 2-3% reduction in yields in regions with higher costs, with the risk of greater disruptions depending on the availability of fertilizers and weather.”
Morgan Stanley analysts said they expect prices to rise in 2022 and 2023, but after that they expect stocks to normalize with increased supply from Latin America. They also believe that prices will be closer to production costs and will fall 15-20% below long-term contracts for soybeans and corn.
Melek said corn grew by 57% in 2021, and this year it could be volatile, averaging 25% over the year. Prices for live cattle rose 19% last year and could rise another 15% in 2022. Wheat grew 27% in 2021 and could grow another 22% this year, he said.
Melek said the high prices are due to limited supplies and shortages.
“We are talking about the erosion of food security on a scale we have not seen in a long time, and I think it will affect low-income people in North America,” he added. Melek said farmers are more likely to consider rotating in buildings with less fertilizer intensity and will save on the amount of nutrients they use.
“Consumers will also make choices,” he said.
Fertilizer production depends on natural gas, and this has affected American producers. According to Morgan Stanley, the largest buyers of the three types of fertilizers are Brazil, India, the United States and China.
“It is very important for us to be a North American manufacturer. We pay somewhere between $ 5 and $ 6 per million for a British thermal plant. [MMBtu] natural gas, “said Will CF.” Europe pays $ 35 to $ 38 per MMBtu … This is a huge gap between low production, and that’s one of the reasons why the price of fertilizer is what it is. It’s not just the lack of availability, but also expensive manufacturers have a very high price.
For some farmers, expensive or unavailable fertilizers will mean that this year’s crops may not get as much nutrition. In turn, yields may be lower.
“In close contact with a number of our customers in Latin America, we are going to start exporting on a humanitarian basis to only deliver nutrients to a region that is rich in growth but also now wanting nutrients,” Will Will CF said.