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With the outbreak of the Russia-Ukraine conflict, the global fertilizer market, which was already tight in supply and demand, has become even more fragile.

On the one hand, Russia is an important exporter of chemical fertilizers in the world. According to data from the Food and Agriculture Organization of the United Nations, Russia's nitrogen fertilizer exports ranked first in the world in 2021, and it is also the second largest supplier of potash fertilizers and phosphate fertilizers.

More than 50% of fertilizer supplies to many countries in Europe and Central Asia come from Russia. Therefore, after the outbreak of the Russia-Ukraine conflict, Russian fertilizer supply was restricted, exacerbating the volatility of the global fertilizer market.

On the other hand, since last year, with the rising prices of coal and natural gas, the cost of fertilizer production has soared, and the global fertilizer market has been in short supply.

The outbreak of the conflict has stimulated the continued rise in coal and natural gas prices, and fertilizers are facing a shortage crisis.

However,

Recently, Nutrien, the world's largest fertilizer manufacturer, announced that it will significantly increase fertilizer production.

According to a statement released by the company, due to important structural changes in the global energy, agriculture and fertilizer markets, the company has decided to increase potassium fertilizer production to 18 million tons by 2025. This is an increase of about 20% from this year’s 15 million tons.

Affected by this, as well as Ukraine's previous statement that it would be more open to easing sanctions on Belarusian potash fertilizer exports, bearish sentiment in the market has increased recently, and fertilizer prices have begun to fall from historical highs in recent weeks.

For example, the price of chemical fertilizers in North America has dropped by about 24% compared with the high point in March. Brazil, a major agricultural country, has also changed from a shortage of fertilizers to an oversupply. There is already a surplus of fertilizers accumulated in several ports, and almost A warehouse is also filled with fertilizer.

Even India, a large fertilizer user, recently stated that the country has sufficient urea stocks to meet demand.

So, does this mean that global fertilizer supply has eased and fertilizer prices will fall?

I’m afraid it’s not that simple.

First, judging from the production increase plan released by Nutrien, potash fertilizer production will increase to 18 million tons by 2025, an increase of 3 million tons compared with the expected 15 million tons this year.

According to the current market situation, the gap is obviously much larger than these 3 million tons, which means that the additional 3 million tons by 2025 will be quickly absorbed by the market.

Second, the current global fertilizer market is not simply a problem of rising prices caused by supply shortages, but a change in the global supply pattern.

This means that the global fertilizer supply and demand pattern will face reshaping in the future, that is, the relationship between exporting countries and importing countries will face being broken and re-established, and this not only involves volume issues, but also transportation costs. , time and other multiple issues.

Thirdly, from the perspective of global inflation, energy prices such as coal and natural gas continue to fluctuate at high levels, and there is little chance of a short-term decline. This also determines that the production cost of fertilizers will inevitably rise.

As a result, under cost pressure, it may not be easy for fertilizer prices to fall.

Fourth, the demand for chemical fertilizers mainly comes from two aspects: agricultural demand and industrial demand. Industrial demand is relatively stable, but agricultural demand shows obvious seasonal changes, especially during the peak agricultural demand season, demand tends to increase. Concentrated growth is likely to cause market price fluctuations.

Therefore, based on these factors, short-term correction fluctuations cannot be ruled out, but in the long term, the decline will be limited and it will still run at a high level.

As the price of chemical fertilizers continues to run at a high level, we need to pay attention to two other issues:

First, the impact of rising chemical fertilizer prices on farmers’ willingness to plant, including the choice of planting varieties. .

For example, with the rise in global food prices, the willingness to plant has increased, and the demand for chemical fertilizers has also increased. However, in terms of variety selection, many farmers prefer to choose crops with relatively small amounts of chemical fertilizers to reduce costs. Cultivation costs, which may have an impact on different crop yields globally.

Second, as the price of chemical fertilizers rises, many farmers may reduce the amount of chemical fertilizers they use.

For example, the fundamental reason for the accumulation of chemical fertilizers at ports in Brazil, a major agricultural country, is not because the supply of fertilizers is really sufficient, but because of high prices, farmers' willingness to buy has decreased, and they choose to wait and see in the hope of further price reductions.

So this is not really supply exceeding demand, but deliberate suppression on the demand side. However, as we just said, agricultural demand has time, and when we can no longer wait, there may be a panic buying or panic buying. Making the market supply and demand even more mismatched.

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