Market Morsel: Gaslighting fertilizer

Market Morsel

We cover fertilizer regularly on EP3, but more so when there are big moves occuring. As a grain grower, fertilizer is one of the highest costs on farm. Therefore these large drives upwards in pricing levels will impact profitability.

The first chart below is quite interesting and shows the average spending on fertilizer in Australian cropping farms on a state by state basis. According to survey data, Western Australia has seen the largest per farm increase in fertilizer costs. This could be down to a number of factors, including consolidation with larger farms emerging.

So what is happening with the fertilizer price? The urea price has climbed substantially; the second chart below shows the Urea – middle east price. This is where we source the bulk of our urea supplies.

In A$ terms, Middle Eastern Urea is trading at A$925; this is just A$33 off the record high achieved in 2008. Whilst these prices are not delivered in Australia, they give an indication of the trend.

One of the reasons for increasing fertilizer pricing levels is the current energy woes. The world is struggling to power itself, with countries from China to Lebanon having issues with both supply and the incredibly high price of coal and gas.

The third chart below shows Urea vs Gas in recent years. The current gas pricing is hitting record levels ahead of the northern hemisphere winter. Gas is the primary feedstock for Urea, and these pricing levels of gas are not conducive to cheap Urea.

The fourth chart and our biggest concern is the ratio between the grain price and inputs. The ratio is currently at 2.76mt of wheat for every tonne of Urea. This is the highest level since 2012. As the fertilizer price increases and grain prices remain relatively flat, this results in a cost-price squeeze.

If grain prices were high at the same time as high fertilizer pricing, it wouldn’t have as large of an impact.

Let’s hope that fert drops or grain rises!