The fertilizer market is quite overheated. Several suppliers report that farmers have already ordered large amounts of fertilizer, much more than usual. Prices are high, but that does not even seem to be the biggest concern for the farmer.
The previous peak in fertilizer prices was in 2008. Even then, grain prices were at a relative level. A higher grain price usually causes farmers in extensive areas to focus less on the cost price and invest more in maximum yield of the crop. So far, the current increase seems similar.
Availability
There is just a big difference. Availability of fertilizer and other means of production (crop protection, machines, etc.) was hardly an issue in 2008. Not having the desired amount of fertilizer on time is now the nightmare. Farmers are afraid of missing out. This fear is further reinforced by partial closures of fertilizer factories.
This is not only the case in Europe but also in America. In the US, the effects of disrupted supply and logistics chains have been noticeable since last spring in the supply of the widely used glyphosate (Roundup) and glufosinate (Liberty). Prices have risen sharply, just like with fertilizer. Several suppliers are unable or unwilling to provide prices for new orders, another parallel with the fertilizer market.
Consequences for the construction plan
The French market agency FranceAgriMer warned last week that high fertilizer prices and concerns about availability may have consequences for the construction plan of arable farmers. Similar sounds are also coming from the US.
"When developing the crop plan, the farmer looks at what the highest input costs are and for which crops these costs are highest," said Joe Outlaw, agricultural economist at Texas A&M University during a broadcast of the US Farm Report. According to Outlaw, this means that crops such as corn, cotton and rice become less interesting compared to crops with lower input costs such as soybeans and wheat. If sentiment among farmers really shifts towards soy, the corn price could rise in the coming months to keep the crop competitive. But that only makes sense if farmers also have sufficient fertilizer and GBMs needed for cultivation, according to Outlaw. “But Midwest farmers love corn.” So we have to see first whether things really progress that well in all regions.
Will fertilizer remain so expensive?
If the current situation is not comparable to 2008, what can it be compared to? Several analysts point to the previous major energy crisis in 1973/1974. Even then, the energy market was dominated by major shortages. The cause is different (then a shortage of oil in particular due to a boycott of OPEC on countries that supported Israel in the Yom Kippur war, now a shortage of natural gas in particular due to, among other things, a rapid economic recovery after corona) but the consequences show certain parallels .
The World Bank has an overview of the price development of a large number of raw materials since 1960 (see graph above). The figures have been adjusted for inflation and run up to and including 2020, so the development this year is not yet included, but the current prices are around those of 2008. The first thing that stands out is that extreme price peaks in 1974 and 2008 lasted one year. It is also remarkable that urea was still a lot more expensive in 1974. The wheat price, on the other hand, is not showing a peak like in 1974. Based on that, there would not be much room for the fertilizer price to rise further. This is also cautiously confirmed by reports about the choice of other crops.
The natural gas price has shown a decline in recent weeks. The gas price remains high, but has exceeded the (temporary) level. That is an indicator that the peak will not last longer than a year. It should be noted that winter is about to start in the Northern Hemisphere and a cold period can still increase demand and therefore the price of natural gas.
Making a prediction is difficult. Several analysts call the current developments unprecedented. But it is unlikely that the fertilizer price will drop significantly for the coming season. For availability, analysts look at the production of fertilizer, which in turn partly depends on developments on the gas market, the final implementation of the construction plans (which will only become clear in the spring) and developments in logistics. The current starting position is not favorable, but some sources indicate that we still have about six months to go before the fertilizer is really needed. A lot can change in that time.