The sharply higher gas prices that we have been confronted with since the beginning of the autumn provided the first impetus for an equally sharply higher fertilizer price. The war in Ukraine adds a new dimension to that. What does that mean for the current season and more importantly: how will the historically high prices continue into the next season?
Since the Russian attack, the price of Kas 27% in particular has risen sharply towards €1.000 per tonne. The price of Kas has remained at that level until now. According to sources, problems with inability to deliver have so far virtually disappeared. With some flexibility from both suppliers and growers, most fertilizer was delivered in time for spreading, although this did cause some headaches.
The bulk of the fertilizer has been delivered and normally a decline in the price of nitrogen fertilizers will start at the end of April and beginning of May. Whether that will happen this season is difficult to predict according to insiders. Natural gas is by far the largest cost item in the production of nitrogen fertilizers and the seasonal decline in greenhouse gases, for example, often coincides with the gas price with some delay. However, in March the gas price was at such a high level that some fertilizer manufacturers scaled down production. The gas price has now fallen again, but remains at an unprecedented high level.
Price elasticity
Looking further ahead to the next season, the big question is whether the relatively high grain prices sufficiently compensate for the increased fertilizer prices. Over the period from 2006 to 2018, according to World Bank data and WUR fertilizer consumer prices, there appears to be a clear relationship between the fertilizer price and the amount of fertilizer used in the EU. A similar connection can also be made between the wheat quotation on the Matif and fertilizer use. These variables are shown side by side in the graph below. The most recent figures on fertilizer use per hectare are from 2018 and the WUR fertilizer consumer price is several months behind. The recent increase towards €1.000 per tonne for Kas that most suppliers have implemented has not yet been included in this overview.
The graph shows that both the grain market and the fertilizer market are shaken up. The peaks and valleys of 2007, 2008 and 2009 are almost insignificant compared to the developments in the last six months. It is impossible to predict how a market will develop, but we can try to draw parallels. In 2008, wheat and fertilizer prices continued to diverge. This first resulted in a sharp decline in fertilizer use and then in a significant correction in the fertilizer price. It should be noted that the natural gas price also fell sharply during the same period.
Fertilizer too expensive?
The comparison of the current price development with 2008 is flawed in one important respect. At that time, the wheat quotation already suffered while the art price continued to rise. Now both wheat and fertilizer are on the rise, with the gap created by the fact that fertilizer has risen much faster in price. The big question that will be answered in the near future is whether the fertilizer price has been pushed up too much or whether wheat is undervalued?
We have already noticed a foretaste of what could happen to the demand for fertilizer due to high prices this season. The demand for organic fertilizer in the Netherlands has been unprecedented in recent weeks and in the less favorably located parts, arable farmers were not even able to receive all the fertilizer they had ordered. Such reports about demand for organic fertilizer can be found in more areas in Europe. Sources in the US also report an increased demand for chicken manure, for example.