Analysis: Spring concerns laid bare at fertilizer event

Concerns about supply and consumption of fertilizers in Europe, particularly during spring 2022, were among the hot topics at this week's International Fertilizer Association (IFA) conference in Lisbon.

Delegates spoke of a potential "disaster" and "catastrophe" ahead, based on concerns over high prices, tight supply and logistics. The key to the entire situation is a sharp increase in gas prices, which have led to significant rises in costs for nitrogen-based fertilizer products and, recently, production curtailments in Europe.

CF in the UK, Achema in Lithuania and Yara at various locations across Europe have been among producers that have had to reduce or cease output of key raw material ammonia.

CF has received government support to restart operations at one of its two UK facilities, but that will not be enough to ease supply concerns in the country, particularly as the company already has an estimated order book exceeding 100,000t to cover.

Another key supplier in the region — one that, unlike CF, produces within the EU — said at the IFA that the likelihood of it receiving government support, to allow it to increase output, was low. When asked by Argus whether this was linked to potential complexities of an EU member state issuing such funding to a domestic firm, the contact was uncertain, but strongly felt that the backing was unlikely to come regardless.

Problems ahead, no matter which path is taken

Given that gas costs have risen further since the conference ended, a short-term rebound in ammonia production — and therefore, also in output of key fertilizers such as urea, AN, CAN and UAN — is unlikely in Europe.

The current tightness in supply is a problem in itself, but even a resolution of this initial quandary would lead to a subsequent issue. As it stands, the most immediate concern is that there will simply not be enough nitrogen available to farmers, come the key application season of spring.

But assuming a hypothetical situation in which gas prices fall and ammonia output increases in — for example — January, a subsequent problem would be an extreme backlog and bottleneck of deliveries in early 2022, as so few would have been made ahead of time.

The other key, related issue is prices — they are set to continue rising, because of the high gas costs and tight supply of nitrates, UAN and other products. Prices will also increase for any complex fertilizer with nitrogen content, assuming no — currently unlikely — counterbalancing fall in prices for other raw materials, such as MOP and DAP.

Indeed, given current trends, prices could easily become too high for many farmers to afford. If traders, wholesalers, co-operatives and others also foresee this, they too will buy less product.

The two key factors could cancel one another out — lower production and lower demand would result in a balance, easing concerns around the logistics of making timely deliveries.

But that would still mean problems with regard to arguably the most important factor — not enough nitrogen would be applied in a Europe-wide context during spring, which could significantly hit food production.

A potential winner in DAP

DAP had been set to lose out this season, as many around Europe considered prices for it to be too high and expected a significant number of farmers to go without. Generally considered to be less important in short-term agricultural thinking than nitrogen, it was felt that farmers would save as much of their input budgets as possible for the likes of AN or CAN, and/or use cheaper phosphates alternatives, including organic options. Meanwhile, DAP producers were relatively unconcerned, focused instead on other, larger phosphates markets across the globe.

But that was all before dramatic developments took place in the nitrogen segment. Now, the 18pc nitrogen content in DAP appears potentially highly attractive, and provides another supply option to buyers in the face of tight supply. Moreover, farmers would be able to apply the phosphates element that they may otherwise have dropped from their programme for the season.

Unsurprisingly, the above scenario has apparently not been lost on phosphates suppliers, which have increased offer prices. The right balance will be required to avoid a reignition of farmers' potential to dismiss the product this year.

By David Maher

European nitrogen prices