Despite falling prices, fertilizer remains incredibly expensive

The price for KAS 27% has fallen sharply in recent weeks. From a level of around €100 per 100 kilos, traders are now quoting prices somewhere between €60 and €65 per 100 kilos. That is a big step back and feels like a good time to reserve at least part of the fertilizer for the next season. That is the advice given by various fertilizer suppliers.

However, a price for KAS of around €60 per 100 kilos is still historically high. Figures from Wageningen Economic Research show that over the past thirty years the average annual price for KAS has rarely exceeded €30 per 100 kilos. There are considerable variations in price during the season. This does not alter the fact that the current price of KAS is more than double the average price in the expensive fertilizer years. Viewed this way, the sharply fallen fertilizer price is still historically high.

Natural gas is the most important raw material for the production of nitrogen fertilizers. And there are many concerns about the availability of natural gas. Due to problems with the supply of gas from Russia, the gas market is extremely tense. This results in very high gas prices and therefore a high cost price for European producers. From that perspective, a fall in the price of fertilizer is less obvious.

This period is essential to build up sufficient gas supplies for the coming winter. However, this stock build-up is not going entirely according to plan, to put it mildly. Acute shortages are not an issue, but various countries are preparing scenarios if there is a gas shortage this winter. Disconnecting major gas consumers is a possibility in many of these plans. Whether and how fertilizer producers will be included in this remains to be seen. A possible forced production stop could have consequences for the availability of nitrogen fertilizers in the coming season.

Global market
A decline in fertilizer prices cannot be ruled out, according to experts. The nitrogen fertilizer market in the EU is largely a regional market, but that does not mean that there are no imports from outside the EU. If European fertilizer becomes too expensive compared to the world market, it is certainly not inconceivable that fertilizer will be imported from other parts of the world. One of the major uncertain factors on the world market is China. The country has been imposing export restrictions on fertilizer for more than a year to secure its own supply and keep the price on the local market within limits. If these restrictions are loosened to some extent, this will soon provide relief to the fertilizer market.

There is certainly something to be said for the advice to order some fertilizer during the current dip. But don't be fooled, several experts warn. Hedging against high prices has the side effect that you are also covered against low prices. And given the extreme volatility on the fertilizer market over the past six months, you also want to keep the option open to benefit from a falling fertilizer price. According to some experts, you should also take into account that we still have approximately nine months to go before the new spreading season. So don't just look at the developments in the fertilizer market over the past six months.