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Fertilizer prices are at record highs. Here’s what that means

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Workers spray fertilizer on a sugarcane crop in Zacatepec de Hidalgo (Morelos), Mexico May 31, 2017. Picture taken May 31, 2017.

Edgard Garrido | Reuters

LONDON — Supply shortages fueled by the Ukraine-Russia conflict, along with a host of pre-existing factors, have driven fertilizer prices to record highs.

Prices for raw materials that constitute the fertilizer market — ammonia, nitrogen, nitrates, phosphates, potash and sulphates — are up 30% since the turn of the year and now exceed those seen during the food and energy crisis in 2008, according to British commodity consultancy CRU.

Russia and Ukraine are two of the largest producers of agricultural commodities worldwide, and their exportable supply of global food and fertilizer markets is concentrated in just a few countries.

According to U.N. Food and Agriculture Organization (UNFAO), Russia was the largest exporter and supplier of nitrogen fertilizers and second in potassic and sulfur fertilizers.

CRU Head Of Fertilizers Chris Lawson stated that although trade between Russia and other countries has continued, it has been greatly disrupted by vessel charterers and importers avoiding Ukraine in the wake of Ukraine’s invasion.

Russia is responsible for about 14% of the global fertilizer exports. The temporary suspension has a significant ripple effect that will affect global food markets.

Gas is an important input to fertilizer production. Lawson stated that high gas prices led to a reduction in production in Europe and further tightening the market.

Immediate implications of sanctions against Russia’s ally Belarus could have on the market for potash, as Russia and Belarus together contribute 40% to each year’s traded volumes.

Lawson stated that nitrogen fertilizer prices rose fourfold since 2020. Phosphore and potash have increased over threefold.

“Farmers in the developed market have benefited from higher agricultural commodity prices which partially offset high input price, but demand destruction is becoming more likely because of high prices.

Inflation is a problem that many economies around the globe are currently facing due to soaring energy and food prices. Lawson suggests that prolonged periods of low fertilizer levels will have a negative impact on long-term agricultural yields.

He said that food inflation was a growing risk due to the tight market for oilseeds and grains, as well as the presence of Russia and Ukraine on those markets.

Before the Russian and Belarusian threats of reduced supplies, fertilizer prices were already under pressure due to global supply disruptions, Chinese export bans and strikes on Canadian railway tracks.

‘More serious consequences’

Although much of the focus of discussions around price spikesThe energy sector has been overtaken by Russia’s invasion in Ukraine. This will only continue to worsen the situation.

In a research note earlier this month, Barclays Chief U.K. and Senior European Economist Fabrice Montagné and Head of Economics Research Christian Keller suggested that “the breadth and intensity of this supply shock could have more severe consequences than previous commodity price spikes, by broadening inflationary pressure.”

According to them, food and fertiliser production are high in energy due to industrialisation, mechanization, and transport. But they must compete with other industries for raw ingredients: for example, the production biofuel diverts crop production away from agrifood while for the production lithium-ion batteries, chemicals that were used in P-fertilizer production are required.”

“Finally,” said a statement by the Associated Press.

Barclays said that this will have an “extremely unsymmetrical” impact on emerging economies, with many of them being affected most by the risks associated with fertilizer and food supply.

However, investors and countries with developed economies will still be affected by punitive Western and Russian sanctions. These sanctions are inevitably going to reduce energy and grain supplies.

John LaForge (Head of Global Real Assets, Wells Fargo) and Gary Schlossberg (Global Strategist), stated that the Russian weight means that other countries are only able to fill “partially”, global supply gaps.

Wells Fargo anticipates that the global food crisis will have a significant impact on all countries, with a particular focus on emerging nations.

According to them, “Overall we believe that the current commodity conflicts will lead to higher, more persistent inflation throughout the world, and even in the U.S.”

We believe that a U.S. economic recession is not likely because of low Russian trade volumes. This should result in the U.S. being in an economically stronger position.

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