Drought set to push up the price of fertiliser

Fertiliser affordability is predicted to increase throughout the year

Fertiliser prices are finally starting to return to normal levels after two turbulent years that saw farmers fork out millions of pounds more due to a global supply squeeze.

Following months of extreme market volatility and record-high prices, exacerbated by the Russia-Ukraine conflict – two of the world’s largest fertiliser producers – affordability in the market is starting to improve, according to Rabobank.

Rabobank’s spot Affordability Index – which shows the relative price of a basket of commodities in comparison to a basket of fertiliser – predicts the 12-month moving average is on track to reach positive territory “in the coming months”, meaning pressure on sectors that rely heavily on fertiliser, like farming, is bound to ease slightly.

Forecasts suggest the affordability index values, which fell sharply last year, will increase from the current 0.25 points to 0.30 points in December, roughly the same levels they were at three years ago.

“Most fertiliser prices are gradually returning to their historical averages, and in some cases, like urea, current values are below historical levels already,” said Rabobank senior analyst Bruno Fonseca.

Nitrogen, phosphate and potash fertilisers will all see declines in prices as global markets begin recovering from the impacts of Covid-19, the war in Ukraine and record-high energy inflation levels.

Many fertilisers, such as nitrogen and phosphate, are made using gas as an ingredient or in the manufacturing process. These have already been consistently falling since the start of the year, supported by a decrease in wholesale energy prices, AHDB data showed.

fertiliser affordability rabobank

Source: Rabobank

Brazil Potash CEO Matt Simpson also confirmed short-term potash prices “will likely come down a bit further from the record highs seen over the last two years caused by the overreaction from supply concerns” from the eastern European region.

However, Rabobank noted that on the commodities side values still remained above average due to tighter stocks and persistent inflation, and that global consumption “may take two or three years to recover”.

The NFU also said that while prices for some fertilisers were coming down, farmers were still having to spend millions more on the raw materials than they were pre-pandemic.

NFU deputy president Tom Bradshaw said: “The cost of fertiliser remains 50% higher than 2019, so we are far away from what we could describe as ‘normal’, with production costs yet to pull through the value chain.

“Farmers and growers are still contractually bound by high energy costs they were encouraged to lock into by government under the energy bill relief scheme, and significant inflation in other inputs like fertiliser and labour means costs of production will remain high and production confidence, low.

“It’s crucial the British farming industry has access to better market data so it can have a better handle on security of fertiliser supplies. Farmers and growers also need to have more flexibility to access more competitive energy prices currently available in the wholesale market.”

Recent analysis from the Energy & Climate Intelligence Unit found that the cost of fertiliser, pushed up during the gas crisis, has been adding around £78m a month to UK farmers’ bills.