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Post: Commodities Corner: Loss of fertilizer supplies from Russia feeds food inflation, benefits other producers

Fertilizer costs have roughly doubled from a year ago as the war in Ukraine disrupted the flow of supplies from Russia, the world’s largest exporter of the commodity. That has contributed to higher global prices for food, especially corn.

“Corn is the most fertilizer-intensive crop and is likely to be the most impacted by rising input costs driven by the spike in fertilizer prices,” says Jeremy Thurm, senior credit research analyst at Aegon Asset Management. Fertilizer is an input cost for most all crops, so those will be affected at some level as well, he says.

DTN’s National Index of Anhydrous was up 122% from a year ago, at a record high of $1,534 per ton as of the week ended April 15, according to Todd Hultman, lead analyst at DTN. Anhydrous ammonia is a source of nitrogen fertilizer. DTN’s National Index of Potash was up 103% from a year ago at $875, and its National Index of Urea is double last year’s price at $1,017 per ton. Potash is a source of soluble potassium used in fertilizers and urea is used as a fertilizer.

“The combination of sanctions, shipping firms avoiding the Black Sea region and Western banks, and traders shunning Russian supplies has created significant uncertainty for farmers regarding their ability to secure adequate fertilizer supply,” Thurm, along with senior research analyst John Kuhn, wrote in a recent note. Brazil, India, the U.S., and China are among the largest fertilizer-consuming nations, and in most cases, they rely on substantial fertilizer imports, they said.

Russia and Belarus—which has been sanctioned by some nations for providing aid to Russia in its attack on Ukraine—account for around 40% of global potash exports, says Thurm. Belarus can’t get its product out of the Port of Klaipeda in Lithuania because of sanctions, he says, and Russia recently decided it would suspend fertilizer exports. That has contributed to higher fertilizer costs.

The U.S. Department of Agriculture estimated 2021 fertilizer costs at $125.26 an acre for corn, $33.58 for soybeans, and $47.14 for wheat, says Hultman. That was when fertilizer prices were at roughly half of where they stand today. Meanwhile, prices for all three crops have seen impressive gains this year, with corn

at its highest in almost a decade. Year to date, wheat futures

are up more than 40%, while soybeans

have climbed over 25%.

Natural gas, meanwhile, a key input for nitrogen fertilizers, is “critical and must be applied every growing season for most crops,” according to Aegon Asset Management. Prices for natural gas 


around the globe have climbed, with Europe seeing record highs this year and U.S. prices reaching their highest since 2008.

That has raised input costs to produce nitrogen fertilizers, Thurm says, and that gets passed along into higher food prices.

Given the uncertainty of the Russia-Ukraine conflict, high fertilizer prices may be here to stay, but trying to buy into a widely known shortage is “not typically a good idea” for speculative traders, says DTN’s Hultman, adding that he can’t be confident of any price prediction.

Still, analysts at Aegon Asset Management said that the current environment for fertilizer is “resulting in a cash windfall situation for fertilizer producers…and, more specifically, for feedstock-advantaged producers of nitrogen,” such as the U.S. and Middle East.

The largest North American fertilizer producers include Mosaic Co. 
 CF Industries Holdings Inc. 
and Nutrien Ltd.
Mosaic shares have climbed more than 85% year to date.

If farmers lose access to fertilizers, that would be detrimental to crop yields and further induce food inflation, says Thurm. “Energy is also a wild card, given how dependent the world’s production of nitrogen fertilizers is on natural gas.”

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