For many farmers it was a shock last year when they received a bill for fertilizer. Prices were at historically high levels. Several fertilizer manufacturers have now published their annual report for 2022. One conclusion you could draw from this is that the high prices were certainly not caused by an extremely high demand for fertilizer.
High grain prices and expensive energy (caused, among other things, by the Russian invasion of Ukraine) and a world that was still struggling with the after-effects of corona. This was frequently cited by fertilizer manufacturers and traders as the cause of the high fertilizer prices. The 2022 annual reports of various manufacturers show that they have not forgotten their own profit margins. To name a few random examples: Yara saw its turnover increase by 2022% in 45 compared to 2021 and its ROIC (return on invested capital) went from 8% in 2021 to 25,7% in 2022. At OCI, the turnover by a third while earnings per share almost doubled. At K+S, turnover increased by more than 75% while gross profit (Ebitda) increased by more than 125%. Such figures that resonate with shareholders are not only reserved for the fertilizer manufacturers that are strong on the European market. For example, the Canadian Nutrien achieved a 36% higher turnover with a 70% higher gross profit.
Farmer will buy, won't he?
Due to the high grain prices, many people said that farmers would continue to buy fertilizer. The higher costs for fertilizer are then more than offset by the higher yields for the crop. That plan didn't quite fly in 2022 after all. The manufacturers mentioned above saw sales, expressed in tonnes of product, decline by a few to even more than 15%. It is therefore not entirely surprising that the stock of finished products on the balance sheet in the consolidated annual accounts of manufacturers has increased in 2022.
That does raise the question of what will happen to fertilizer prices this year. Since the start of the new marketing season, fertilizer prices have fallen across the board. Nitrogen-containing fertilizers in particular have fallen sharply in price. This can largely be explained by natural gas prices, which have also fallen sharply in recent months. As a result, the costs for nitrogen production have also fallen considerably and nitrogen fertilizer normally follows the gas market with a few months' delay. If we look back over a longer period, the average consumer price for greenhouse 27% rarely exceeds €30 per 100 kilos. The year 2008 was the previous exception to that rule, but the price back then is not yet close to what we saw in 2022.
In terms of price range, phosphate shows a considerable similarity to greenhouse gas in recent years, a relatively narrow price band with 2022 and 2008 as major outliers. Kali shows more variation in prices, but here too 2022 really stands out.
New soil
If you look at the development of grain prices in relation to fertilizer prices, the fertilizer price could reasonably fall even further. Wheat prices are still good, but a price on the Matif for wheat of around €260 per tonne is certainly not extreme. It should be noted that production costs have probably increased. If you look at the manufacturers' annual figures, the relatively expensive fertilizer certainly had a negative impact on sales last year. Now that the euphoria among arable farmers about the high prices on the grain market has faded, fertilizer factories will probably have to adjust prices even further to keep sales afloat. It is difficult to predict where that bottom will be in the market. It appears that expensive stocks on the balance sheet and high expectations from investors are hanging like a millstone around the neck of fertilizer producers after a year of exceptional profits.