Fertilizer Supply Chains Hold Steady, But No Guarantees
14 April 2020 In these uncertain times, global supply and demand of mineral fertilizers – responsible for growing around 50% of the world’s food today – remain comparatively stable. But that picture comes with plenty of caveats, industry experts warned.
Since the coronavirus crisis began, many governments have already recognized fertilizers as an “essential” product or industry, implementing policies to ensure that the fertilizer supply chain can continue to work properly during the lockdowns. According to the International Fertilizer Association, these include Argentina, Australia (New South Wales and Victoria), Belgium, China, Côte d’Ivoire, France, India, Italy, Malaysia, Morocco, New Zealand, Nigeria, Canada (Québec Province), Russia, Spain, United Kingdom, USA, and Vietnam.
These countries together represent about 60% of global fertilizer consumption and include some of the world’s biggest food producing and exporting countries, IFA said, adding:
“While the pandemic may impact the upcoming farming season due to possible disruptions in the supply chain and because of labor shortages, it could also continue to affect the following seasons as farmers may lack cash to purchase fertilizers and other key inputs.”
The biggest point of concern from the perspective of the crop input space was that coronavirus originated and manifested itself in China, which accounts for 45 percent of the world’s finished phosphate production and 40 percent of global fertilizer exports, according to Rabobank.
As China opens back up and logistics recover, the IFA explored the lessons learned there as other countries now experience many of the same disruptions.
Samuel Taylor, Vice President with Rabobank, cautioned, “If we were to hit a second wave outbreak of coronavirus, then we really could be in trouble globally from a supply dynamic. If you had labor issues at some of the significant ports, which are hubs for the export of these production, we could have serious dislocations in supply and demand and real price volatility.”
Taylor pointed to the example of India, where utilization rates at fertilizer plants are running far under capacity. While the country is a net importer of urea, it is still a significant producer of the fertilizer.
“Fertilizer is categorized as an essential service, but the actual practicalities of production and labor mean they have difficulty in keeping (plants) going,” he told AgriBusiness Global. “It’s the very early days (of the pandemic) in India, but this seems to be a moving target at the moment, as to how this is feeding into the global input space.”
Magnus Ankarstrand, President, Yara North America, noted that it’s important to remember that the fundamentals of the fertilizer industry are strong in the sense that the amount of food crops needed to be produced each year remains fairly constant.
“Food security will be even more important going forward. We have done a lot of preparations internally at Yara to protect our operations to make sure that our plants and terminals can operate, because obviously they can’t work from home,” he explained.
Yara reported on April 8 that its operations continue to run without significant disruption. However, the company, which operates in 60 countries, said its Brazil projects (Salitre and Rio Grande) have been paused as a result of general COVID-19 measures announced by local authorities.
At the Mosaic Co., the global phosphate and potash producer, disruptions have also been relatively minimal.
“To grow a crop, whether it’s in the U.S. or China, we still need NPK. Our industry will in no way see demand disruption like we’ve seen in travel, airlines, restaurants, and things like that. But of course, depending how long it goes on, if it goes on a long time, we will of course at some point be impacted as well,” Ankarstrand told AgriBusiness Global.
A notable exception in demand disruption is for specialty fertilizers for the fruits and vegetables market, due to restaurant closures worldwide. Potato crops could also take a hit, as French fry demand drops significantly with shuttered restaurants. “This is a very serious matter, because potatoes in not only North America but other places in the world are an important food crop. What gets planted now impacts what is available to eat next year. If we were to see a massive reduction in potato planting for instance, that’s one thing governments should watch closely,” Ankarstrand said.
In the United States, where USDA has forecast an 8-percent increase in corn planted area to 97 million acres for 2020, the anticipation is that nitrogen will be in high demand. “(Demand) can’t be made up by the ammonia, so it’s got to be made up by urea. But because a lot of the storage bins in the Corn Belt are still full of phosphate and potash, there is less urea in the market, which is why there has been a little bit of volatility,” Taylor explained. “You’re seeing the western Corn Belt benchmark for urea go up, whereas the eastern Corn Belt less so. So, you’re seeing a relative amount of volatility in the urea market versus the other markets, because there is less in storage of urea and nitrogen than there is of P and K.”
Ankarstrand was skeptical on USDA’s forecast, but even 94 million acres of corn would be significant for nitrogen in terms of the U.S. supply, he said.
Taylor also warned about the underlying impact of big oil and the ethanol crash on commodity prices.
“From a farm economics standpoint, if we have this destruction of demand in ethanol to an extended oil price battle or an extended lockdown where people are not driving, this has particularly deleterious effects to corn pricing next year, which if you get 97 million acres of corn planted, is very ominous for commodity pricing,” he cautioned. “If you predicate your input pricing on commodity prices, it will be very hard for input companies in the next couple of years to increase their pricing. There is a fundamental risk for a lot of the input companies in the next 12 to 18 months.”
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