World faces bigger grocery bills as fertiliser costs rocket

Most people do not give fertiliser a second thought — except maybe when driving through a particularly fragrant agricultural area. But with prices for some synthetic nutrients at their highest levels since the financial crisis, it could mean weaker harvests and bigger grocery bills next year, just as the world’s supply chains start to recover from the pandemic.

A confluence of events — from extreme weather and plant shutdowns to new government sanctions — have hit the chemical fertiliser market this year, slamming farmers already buckling under the strain of rising costs to produce food. Prices for urea, a popular nitrogen-based fertiliser, rocketed earlier this month to the highest since 2012 in New Orleans, the US’s major fertiliser trading hub. A common phosphate fertiliser, DAP, is the most expensive in that market since 2008, Bloomberg data shows. 

“As fertiliser prices continue to rise, farmers will either cut application rates, cut fertiliser entirely in hopes for lower future pricing, or cut other farm products to account for the bigger expected spend,” said Alexis Maxwell, an analyst at Green Markets, a business owned by Bloomberg.

Some are holding out before buying for the next growing season in hopes costs come down — a risk, she said, since prices could continue to rise.

Farmers growing the commodity-grade maize, soy and other grains that fuel livestock and packaged-food factories are already spending more than normal on seeds, labour, transportation and equipment. That has helped contribute to sharp food inflation over the past year. A UN measure of global food prices is near the highest in a decade, a problem the fertiliser spike could worsen.

Consecutive storms

“Fertiliser cost is one of the biggest drivers behind global food inflation now as prices for all three groups of nutrients — potash, phosphate and nitrogen — are at levels not seen for about a decade,” Elena Sakhnova, a VTB Capital analyst in Moscow, said.

Coinciding events are behind the rising prices. Consecutive late summer storms on the US Gulf Coast prevented product from moving in and out and temporarily shuttered plants in the region, including the world’s largest nitrogen complex, owned by CF Industries Holdings. The company was then forced to shut two UK plants due to Europe’s record rally in natural gas, the primary feedstock for much of the nitrogen produced globally. On Friday, Yara International said the high natural gas prices will force it to curtail about 40% of its European production capacity for ammonia, used to make fertiliser. 

The logistics companies that transport fertiliser are also facing labour shortages and price increases, adding to costs.

“It sure has made things tremendously more difficult to work with,” said Bill Stringfellow, who co-runs a small operation, Quest Products, which helps bring new products to the market, including pesticides and fertiliser products. Freight is about 15% of the cost of buying product for their business, he said, calling it “an absolute nightmare”.

Government action is also at play. Earlier this year, the US and Europe put sanctions on Belaruskali, a major potash producer and one of Belarus’s largest state-owned enterprises, in response to a journalist arrest on a Ryanair flight in May. In China, Yunnan province ordered production cuts across several industries, including fertilisers, as part of measures to curb energy consumption and emissions. 

The National Development and Reform Commission has vowed to crack down on urea hoarding and price gouging to maintain market stability, but prices have still been soaring: urea futures on the Zhengzhou Commodity Exchange have powered to a fresh record amid high prices for coal — the primary feedstock for nitrogen fertilisers in China — and concerns over tight supplies. 

Mostly information

Silvesio de Oliveira, a 51-year-old soybean and maize farmer in Tapurah — at the heart of Brazil’s soybean belt — was fortunate enough to get ahead of the latest price rise. Last November, he bought 100% of the fertiliser needed for both crops.

“We’ve been noticing this fertiliser inflation coming,” he said. He got out ahead because he voraciously reads commodities news, he said. “There’s a bit of luck, but it is mostly information.”

If farmers cut back how much fertiliser they use, among the most affected could be corn, one of the highest-yielding crops but also an expensive one to raise. Fertiliser accounts for about 20% of that expense, said Maxwell, the Green Markets analyst.

Smaller maize crops could mean elevated feed costs for dairy and other animal farmers, ultimately translating to higher prices for consumers buying meat such as beef and chicken. Maize — its high-fructose syrup, that is — is also a major ingredient in sodas, juice and other processed food consumed by many households. 

“We’re anticipating this will affect the acreage battle next year,” said StoneX chief commodities economist Arlan Suderman. “We are looking for lower [maize] acres next year as a result.” Suderman estimates hectares of US maize at 37-million, down from 38-million this year.

Plants, like people, need a combination of nutrients to survive, and multiple types of fertiliser provide different inputs. As nitrogen has to be applied about annually, farmers are unlikely to cut the amount they buy and apply to fields, Maxwell said. Farmers are thus more likely to cut back on phosphate and potash, instead relying on the nutrients they hope are already in the soil.

But some farmers might even cut nitrogen application if the prices continue to rise, said Jerome Lensing, an independent crop adjuster at insurer Rain and Hail — and that could be a problem.

“With the price of nitrogen going up,” he said, “I hope guys don’t back off so much that come next [autumn], when they’re out harvesting, they’re saying, ‘how come I’m not getting the [maize] I thought I should be?’”

Bloomberg News. More stories like this are available on bloomberg.com