In the commodities family, the fertiliser market is often like the middle child — generally even-tempered and constantly overlooked.
However, attention can’t help but be drawn to this market as its outcries can currently be heard from almost every corner of the globe.
A myriad of international factors have tipped the fertiliser scales out of balance, and despite steadily increasing values, it seems no price is too high to impact current global demand.
In October, the World Bank’s commodity markets outlook projected global diammonium phosphate (DAP) and urea prices would increase by three per cent in 2021.
Growing global demand supported by favourable weather conditions in Australia, India and North America, higher energy costs and increased prices for raw materials such as sulfur, laid the foundations for moderate price increases.
India’s appetite was strong throughout 2020, as the country began to stockpile fertiliser while weather conditions were favourable.
Later in the year, a depreciating Brazilian real increased crop prices and boosted fertiliser demand in that major market.
Since the start of this year, DAP and urea prices have both surged 26 per cent.
Compared to last year, DAP and urea prices have soared above normal levels, up 89 per cent and 56 per cent respectively, with the February average for DAP sitting at US$529/mt.
The last time phosphate prices were this high was back in 2012, close to 10 years ago.
In January, demand from the European Union for Egyptian urea, supported by relatively small but regular purchases, caused prices to steadily increase, yet EU buyers remained undeterred.
These many small price gains set the stage for prices to boom. The arctic chill that breezed its way through the Northern Hemisphere, served as the main catalyst for the surge in prices this year.
In China, cold temperatures forced the reallocation of resources to focus energy on heating homes.
As one of the world’s largest fertiliser producers, China’s consequential withdrawal from the fertiliser export market has severely dented global supply.
Demand remains strong in the United States, as the country moves into a key fertiliser application season.
Local fertiliser production took a hit recently as cold weather led to surging natural gas prices, prompting fertiliser production facilities to temporarily shut down.
With much of their normal gas requirements pre-contracted, it became more economically justifiable to sell that gas back to the market at high spot prices, than to use it continuing production.
While some facilities are trying to get up and running again, this momentary slowdown has come at a time when imports are well below what is needed for this time of year.
With so many factors in play influencing the fertiliser supply and demand relationship, the market is expected to remain volatile for some time.
Global prices are yet to materially impact demand, and with strong buying looming from the US and Brazil, concerns are circling around whether their requirements will need to be filled at the same time, or if they can be handled sequentially.
At the time of writing, India is yet to approach the market for imports, with analysts suspecting this may happen around the end of March.
As temperatures in the Northern Hemisphere warm up, China may soon offer fertiliser to the market once again, helping to rebuild supply and work towards easing prices.
However, leading into spring in the Northern Hemisphere and autumn south of the equator, it doesn’t appear global demand will be reducing anytime soon.
Back home, conditions in Australia have been favourable with benign weather conditions, reasonable input costs and strong feed availability.
It seemed likely that something would throw a spanner in the works, and a year on from unfounded concerns about COVID-related fertiliser shortages, we may see sourcing issues emerge.
Uncertainty is already causing challenges for croppers; to date the pain seems to be manifesting as higher prices more than lack of physical supply.
If issues worsen and growers are unable to get their hands on the fertiliser they need, winter crop yields could also be impacted — potentially reducing the availability of supplementary feed post-harvest.
Furthermore, if distributor stocks run low the ability of dairy farmers to boost pasture growth rates and nutritional value during a key grazing period will also suffer.
At this stage, there is a good chance Australia will again dodge the issue of physical shortages, albeit at the cost of higher delivered prices.
While a stubbornly higher dollar helps alleviate some of the pain, it looks like the fertiliser market is at least going to get the attention it often misses.