Fertilizer supply issues loom ahead of crucial planting seasons

Russia's invasion of Ukraine has led to concerns of possible disruptions to the supply of fertilizers -- a major input for growing crops -- and there are many indications that some of the supply issues could persist till end-2022.

Russia is a top fertilizer exporter and has enormous resources in terms of crop nutrients as well as natural gas — a major component in manufacturing fertilizer.

Russia accounts for 15% of global trade in nitrogenous fertilizers and 17% of global potash fertilizer exports, and it also accounts for about 20% of global trade of natural gas, a recent report by International Food Policy Research Institute said.

Supply disruptions from Russia can add to the challenges that have emerged in the global fertilizer market recently. Prices of the most commonly used fertilizers have surged to historical highs in the last few months due to higher input cost as well as supply and logistical issues.

While sanctions on agriculture products or crop inputs from Russia seem unlikely, the mechanism that facilitates exports, including banking and shipping, have become more challenged, a top official with a major fertilizer manufacturing company said in a conference.

Beyond Russia

Belarus, an ally of Russia and another major producer of potash, is also being targeted by some international sanctions, hampering its potash exports.

Belarus accounts for an additional 16% of global potash exports and around 85% of Belarusian potash is exported from the port of Klaipeda in Lithuania.

In December, the Lithuanian government hardened its stance against the transit of Belarusian potash, and canceled the contract between the Lithuanian state railway company and the Belarusians for the transportation of potash through Lithuania.

Lithuania's decision to block Belarusian shipments could have a significant impact on the global supply of potash, The Mosaic Company, another major supplier of fertilizers, said.

Meanwhile, China has restricted exports of phosphate fertilizers to support local farmers.

China enacted export restrictions late last year, and they could remain in place through June 2022, The Mosaic Company said.

"China accounts for between 25%-33% of global phosphate exports annually and the country's decision to stop significant exports has impacted supply and demand globally," it added.

For both potash and phosphates, supply chain constraints and impacts related to COVID-19 are impacting the global market. "These issues, combined with the current global supply and demand situation, point to tight markets for both phosphates and potash well into 2022," The Mosaic company said.

The supply of nitrogen fertilizer also looks tight in 2022.

Global nitrogen inventory entering 2022 is believed to be low following a year of strong demand and lower production, CF Industries, a major producer of nitrogen fertilizer, said

"High energy prices in Europe and Asia, along with ongoing restrictions on exports of certain nitrogen products from Russia, Egypt, Turkey and China, suggest global nitrogen supply will continue to be challenged," it added.

Impact on planting

Farmers in Ukraine -- the leading producer-exporter of wheat, corn and sunflower oil -- are now entering a crucial stage in the agricultural season in which input factors will determine the yield of the coming harvest.

"The most extreme calculations indicate that if fertilizer is not added to the soil, the crops can be reduced by 50% by the next harvest," Yara International, one of the largest producers of nitrogen fertilizer, said.

Meanwhile, farmers in the US are entering the corn planting season.

Moving to Brazil, the country's dependency on Russia for fertilizers is significant and it could face major challenges in the coming days in sourcing the key crop inputs.

The fertilizer supply is not moving, and there have been vessels that have either declared force majeure or are not shipping, an official with a major fertilizer producer in the US said during a conference.

In Brazil, sugarcane is planted over April-June when ammonium nitrate is applied to it, and almost 100% supply comes from Russia, the official said.

In the case of the US, the country has adequate fertilizer supplies, but logistical issues persist, according to experts.

In a letter to US President Joe Biden, The Fertilizer Institute along with grain feed and transport groups requested the administration work with the Canadian government to avert a major railway labor strike and to rescind the cross-border vaccine mandate for workers moving essential commerce.

"If the US and Canadian governments allow the following supply chain disruptions to persist into the spring fertilizer season, the impacts to our industry and North American farmers could be devastating," the working group said.

Price cushion

Profit margins of farmers have been impacted by high fertilizer prices. However, the rally in major crop prices over the last few days could give farmers support amid the increase in input costs.

"Corn and soybean prices in the US and Brazil remain very strong, and prospective crop margins are well above the 10-year average. We expect this will incentivize growers to invest in their crops," according to Nutrien, one of the largest producers of potash and nitrogen fertilizers.

The Mosaic Company also reflected similar sentiment on fertilizer usage in 2022. "Grower profitability has receded from 2021's record levels, but farm economics in most global growing regions remain constructive. In North America, Brazil, and China, domestic crop prices continue to justify nutrient application."