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A fertilizer shortage, worsened by war in Ukraine, is driving up global food prices and scarcity


Remy Gabalda | AFP | Getty Images

A shortage of fertilizer has contributed to increasing concerns regarding the Ukraine war’s effect on the scarcity and price of basic food items.

Morgan Stanley estimates that Russia and Belarus together had contributed about 40% to the global potash market. Sanctions imposed on Russia on its exports of potash were a major problem. In February, the US imposed major sanctions on Russia’s exports. Belarus producer declared force majeure — a statement that it wouldn’t be able to uphold its contracts due to forces beyond its control.

Russia exported also 11% and 48% respectively of the world’s ammonium-nitrate. According to Morgan Stanley, Russia and Ukraine export together 28% of the fertilizers that are made from nitrogen, phosphorous and potassium.

Prices for fertilizers have soared due to disruptions in shipments caused by war and sanctions. Even more high grain prices continue to rise. 

According to one source, “It’s a major problem.” CF IndustriesTony Will, CEO of CNBC. According to him, global fertilizer supplies remain very scarce. CF produces and distributes fertilizers.

Will stated, “It’s an confluence. Unprecedented demand and a massive falloff in supply, just exacerbated only by the war in Ukraine, and what’s happening with exports out of Russia, and Ukraine.”

This is a contributor to rising costs and shortages

Bart Melek (global head of commodity strategy for TD Securities) said, “All this is a twice whammy, if it’s not a triple whammy.” “We face geopolitical risk and higher input costs. We also have shortages.” 

“Agriculture will absolutely be hit. “It’s great for Saskatchewan which produces the most potash, but the farmers will be hurt by the higher price per acre,” Melek explained. Melek said that farmers will get lower yields simply by reducing costs, especially in emerging markets.

The price of food and basic commodities will rise due to grain shortages. This will lead to increased input costs to produce everything, including grains, wheat, and corn. Melek stated that the input costs for producing grains, wheat and corn are going up because of scarcity. He also said that prices for steers, cows, and pork belly have risen significantly in the meantime.

Some fertilizers are more expensive than others. Melek, for instance, stated that potash in Vancouver had been priced at $210 per metric ton at beginning 2021. It is now valued at $565. Melek also stated that the Chicago Board of Trade was pricing urea to be delivered to the Middle East at $268 per ton in the early 2021, and it was worth $887.50 Tuesday.

Will explained that CF Industries operates its plants 24 hours a day, forgoing maintenance in order to accelerate shipments to the areas most in need. “There is no need to produce new tons. “It’s just about trying to get them there in as quick as we can, into the marketplace,” said he.

As the cost of fertilizers rose, so too has the price paid for agricultural commodities. This is a result of fears about shortages.

Will said, “We face a crisis of unprecedented proportions.” The issue of lack of affordability and availability of nutrients is a major problem. Russia and Ukraine historically have exported approximately 30% of the world’s global wheat trade, and 20% of its global corn trade. According to him, there is a shortage of commodities because the Black Sea has closed.

Rising wheat, soy and corn prices

Wheat futuresOn Wednesday, July’s numbers fell slightly. These rose by 4% on Wednesday due to worries over Ukraine, but also because of worse-than-expected crop conditions in America. Corn futures pricesThe Chicago Board of Trade reported that they are almost 30% higher year-to-date, and were slightly lower Wednesday. SoybeanThe futures prices were slightly higher as well.

Morgan Stanley anticipates that grain prices will remain at or above the levels of last year until 2023.

“Before Ukraine war, dry weather was in [Latin America]”We reduced our inventories to levels that could already maintain high grain prices,” said the Morgan Stanley analysts in a recent report.

The war creates uncertainty about Ukrainian corn/wheat supplies and, even more, fertilizer use, which will have an impact on global yields. Our base crop price scenario assumes a 2-3% reduction in yields for higher-cost areas, and risks of greater disruptions depending upon weather conditions.

Morgan Stanley analysts predicted higher prices for 2022-2023. However, they anticipate inventories to normalize after this time with increased supply from Latin America. Also, they expect that prices will be more in line with production costs. They are also expecting prices to drop 15-20% from longer-term corn and soybean contracts.

Melek cornIt rose by 57% between 2021 and 2021. However, it is possible that the average annual increase of 25% could prove volatile. Live cattlePrices rose by 19% in 2017 and may rise another 15% in 2022. WheatHe stated that it was up 27% in 2021. It could add another 22% to this year.

Melek stated that high prices can be attributed to tight supply and shortages.

Melek said that there is a loss of food security in America on an unprecedented scale. He also stated, “We’re talking here about an erosion to food security in America on a scale not seen in a while.” Melek stated that farmers will likely consider using less fertiliser-intensive crops and reduce the number of nutrients they consume.

He said, “Consumers will make choices also.”

U.S. fertilizer producers have made significant gains because of the availability of natural gas. According to Morgan Stanley, China, India and the U.S. are the biggest purchasers of top-three fertilizers.

For us, being a North American producer means a lot. The cost of a British thermal unit is somewhere between $5 and $6. [MMBtu]Will of CF stated that natural gas is the most expensive. “Europe pays $35 to $38 per MMBtu…That is a huge spread between low cost production, and it’s one of the reasons why fertilizer price is what it is. The high-cost producers also have very high costs.

Some farmers may find that their crops are not getting as much nutrition due to the inaccessible or high-priced fertilizer. This could lead to lower yields.

“In close contact to a number our customers in Latin America we’re going be exporting on a humanitarian basis just to get nutrients to a region which is a rich growth area, but also starved for nutrients now,” stated CF’s Will.