Instability Hitting Hard
Fertilizer prices have been rallying and supplies running out across North American markets. Today's report explains the impact of recent events on key manufacturing and trading channels.
Overview of the North American Fertilizer Trade
Synthetic fertilizer is made from natural gas, ammonia, and other derivatives of crude oil. The different products applied to fields are further processed and packaged in various ways to accommodate farmer preferences, plant nutrition requirements, and different types of application equipment.
Phosphate fertilizers are commercially referred to as MAP and DAP, i.e. mono and di-ammonium phosphates. Potash is the bright yellow fertilizer that delivers potassium to crops.
The biggest category of commercially-traded synthetic fertilizer is nitrogen, which comes in dry, gas and liquid forms, i.e. urea, anhydrous ammonia, and UAN. NPK refers to the amount of each type of fertilizer in a blend, for example a bag of 18-46-0 contains 18 lb of nitrogen, 46 lb of phosphorous and no potassium.
The trade often quotes global fertilizer ‘FOB NOLA,’ which refers to contract prices between buyers and sellers in import/export terminals in New Orleans, Louisiana, the primary fertilizer handling port in North America. From there, products are shipped up the Mississippi River and by truck and rail to retail stores that sell to farmers across the grain growing regions of Canada and the U.S.
Tracking the Trade
The trade in global synthetic fertilizer is fairly simplistic. There are a small number of companies and countries that manufacture the majority of world supplies, and several significant consumers.
Trade happens primarily between global grain-producing powerhouses: Europe, Australia, Russia, Ukraine, the U.S., Canada, China, India and Brazil. Middle Eastern countries including Iran, Israel, Egypt and Jordan are net exporters.
Beyond the base commodity price of synthetic fertilizer, costs related to transportation and storage determine the final price paid by a farmer. Retail crop input stores typically follow a ‘first-in-first-out’ system of inventory pricing, creating lags in rural markets in response to global market events.
Current Situation & Outlook
If you’ve read this far, you’re probably a grain farmer that is concerned about the situation in Iran and the Middle East further raising fertilizer costs. Here are the important fundamental factors and influences currently playing out:
Sources report that 25% of the global export surplus of urea is manufactured in Iran, and that those facilities have now been shut down for over a week. The impact of taking these supplies out of the market, and the headlines along the way, has been dramatic.
2 weeks ago, the pre-conflict price of urea was $350/t FOB NOLA. It jumped to $450/t immediately following the attack on Iran’s nuclear facilities, peaked at $480/t earlier this week, and has since settled down to $400/t.
These are extreme daily moves – nearly unprecedented volatility for global cash commodity markets. Merchants and supply chain stakeholders build risk premiums into contract and retail prices in response, to manage their new financial risks.
Today’s country retail fertilizer prices, especially for urea, are not fully reflecting the fundamental market impact of recent world events, but they will as wholesalers refill inventories at current values.
On top of the transportation and storage costs to move fertilizer from New Orleans to grain farming communities, a new market risk premium will further increase retail prices.
Summary
At Prairie Routes, we are 100% independent in providing support and advice to clients. We only benefit via customer satisfaction and repeat business, if/when our predictions and strategies work out well.
Keep that in mind in considering how to respond to recent world events, and the ongoing uncertainty and volatility in the markets for crop inputs and outputs. Now is the time for thoughtful, well-informed, strategic and realistic planning… and to choose professional partners carefully.
The markets have shape-shifted. Unpredictability is uncomfortable, but it can be managed, by understanding the business model for post-industrial farm profit-maximization. Please reach out to learn more by emailing hello@prairieroutes.ca, or filling out an intake form on our web site.