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The world’s fertilizer industry is imploding.
Together, Russia and its neighbor Belarus—now coming under Western sanctions—export about 40 percent of the world’s supply of potash, 95 percent of which is used to make fertilizer. Russia also delivers 11 percent of the world’s urea and 48 percent of the globe’s ammonium nitrate, both also key elements in fertilizer.
Russia and Ukraine jointly make 28 percent of the world’s fertilizers that include nitrogen and phosphorus, Morgan Stanley reported.
The war and its sanctions have halted those deliveries, sending fertilizer prices skyward and taking food prices with them as traders expect short harvests next year when crops are starved of soil enrichments.
Potash trading on the Vancouver, British Columbia, market fetched $210 per metric ton early last year; last week, it was selling for $565. Urea for Middle East delivery traded at $268 per ton on the Chicago Board of Trade early in 2021 but brought $887.50 on 5 April.
Natural gas is used to make ammonia and urea for fertilizer. Gas prices in Europe had reached record levels before the war, but have since rocketed to as much as $38 per million Btu’s, compared to the U.S. price of $5 to $6.
Some of Europe’s fertilizer plants shut down late last summer because gas was too costly to allow them to operate in the black, as we reported in “Will Surging Gas Prices Sink U.K., E.U. Economies?” (21 Sep 2021).
“It’s a confluence of factors—unprecedented demand coupled with a huge fall-off in supply availability, exacerbated by the war in Ukraine and by what’s going on with exports out of Russia and Ukraine,” Tony Will, CEO of fertilizer maker CF Industries.
“We have geopolitical risk, higher input costs, and shortages, a triple whammy,” Bert Malek, TD Securities’ chief commodity strategist, told CNBC.
“Farmers are going to get lower yields because they’re economizing, particularly in emerging markets,” he noted.
The lack of fertilizer will result in smaller grain yields, driving prices higher for foods ranging from bread and cereal to dog food and frozen dinners. Supermarkets’ meat prices also will rise because commercial cattle lots feed grains to livestock to fatten them before slaughter.
“We are facing a problem of catastrophic proportions,” Will said, adding that Russia and Ukraine export 30 percent of the world’s wheat and 20 percent of its corn, but the Black Sea, by which most of those exports travel, is now closed.
Partly as a result, Morgan Stanley analysts foresee global grain prices remaining at or above current levels through next year.
“Before the Ukraine war, dry weather in [Latin America] took inventories to levels that would already keep grain prices high,” they wrote in a recent note to clients.
“The war adds uncertainties related to the Ukrainian corn and wheat supply and, more important, to fertilizer use and global yields,” they added.
“Due to this, our base crop price scenario implies a 2- to 3-percent reduction in yields in higher-cost regions, with risks of larger disruptions depending on fertilizer availability and weather.”
CF Industries will export fertilizer to Latin America “on a humanitarian basis,” Will said.
PUBLISHER’S NOTE: The fertilizer shortage is yet another example of the ripple effect that the Ukraine War and Western sanctions are having throughout the economy of the world and those of individual nations.
It will take years, and possibly decades, for the world, and especially emerging economies, to recover from the ramifications of this single war—and that does not take into the account the sheer waste and destruction that will have to be dealt with, eating up even more resources that could have seen other, better uses.