Farmers will still face high fertilizer prices for the first and second applications, according to Peter Arkenbout, marketing manager of Yara Germany & Benelux.
Although US President Donald Trump predicts a quick end to the war in Iran, not much has changed in the fertilizer market so far. "The market remains uncertain," Arkenbout explains. "Fertilizer will probably become a bit more expensive, but no one dares to say how much."
In general, fertilizer traders didn't have sufficient stocks at the beginning of this year. Therefore, they are currently forced to buy at a premium, as prices aren't expected to drop drastically in the short term. These higher prices are passed on to farmers.
When tensions in Iran rose and prices soared, traders started hoarding. "It's like with toilet paper during the coronavirus pandemic." A considerable amount of fertilizer has been purchased recently, and this will need to find its way to farmers in the near future. Therefore, the current high price level will likely linger for a while.
Spread out and purchase on time
"What I'm saying is very basic," says Arkenbout, "but we always emphasize that farmers should make their fertilizer purchases in a staggered and timely manner. You see what happens when something unexpected happens."
The escalation of the Middle East conflict, pitting the United States and Israel on one side and Iran on the other, is once again causing significant unrest in the global fertilizer market. This is leading to sharply rising energy prices, with the price of gas playing a significant role in fertilizer production.
Moreover, the logistics surrounding the Strait of Hormuz play a significant role in this conflict. Ships are currently stuck or waiting for safe passage due to the blockade of this strait, while insurance and freight costs are rising.
According to an analysis by Rabobank RaboResearch Approximately 25% to 30% of global nitrogen fertilizer exports pass through this strait. Arkenbout adds that, according to another report, 35% of all urea passes through this passage. This has such a significant impact on global trade that a blockade of the strait would cause prices to rise sharply.
KAS price follows more expensive urea
The market reaction was immediate. Within 48 hours of the first attacks, urea prices in North Africa rose by almost 20%, while European gas prices also rose sharply. The higher urea prices directly impacted fertilizer prices in the Netherlands, as the price relationship between CAN and urea is very close.
According to market analyst firm ICIS, urea prices have risen by up to 35% to their highest level in three years. Buyers worldwide are seeking alternative volumes as export flows from the Arabian Gulf are disrupted.
Just before the fertilization season
The timing of the disruption is particularly unfortunate for farmers in the Northern Hemisphere. In several regions, the fertilizer season is just around the corner. American and European farmers, for example, are preparing for spring fertilizer application, and India has already secured more than 500.000 tons of urea from the Gulf region for delivery before the monsoon season.
Moreover, the global market was already tight. Chinese urea exports remain limited, while earlier in the winter, production disruptions were already occurring due to gas problems in Iran. Ukrainian attacks on Russian nitrogen plants have also previously impacted supply, according to ICIS.
Problems are also arising on the production side in the Middle East. For example, QatarEnergy temporarily halted ammonia and urea production after halting LNG production. This is creating additional tension in the nitrogen market.
Phosphate and sulphur also under pressure
It's not just nitrogen fertilizers that are reacting to geopolitical tensions. According to ICIS, the phosphate market is also nervous, with producers being cautious about new offers and trade temporarily slowing down.
At the same time, the global sulfur trade has largely ground to a halt because buyers and sellers want more clarity on the duration of the conflict. Arkenbout explains that approximately 45% of the total sulfur trade passes through the Strait of Hormuz, and that this therefore has a significant impact on sulfur prices in the Netherlands.
Potential impact for farmers
For farmers, this could mean a double cost increase. On the one hand, due to higher global fertilizer prices, and on the other, because fertilizers within the EU fall under the Carbon Border Adjustment Mechanism (CBAM), which could increase import costs.
According to Rabobank, further price developments depend heavily on the duration of the conflict. A rapid de-escalation could stabilize the market, but a prolonged disruption of transport and energy supplies could lead to structurally higher fertilizer prices.