China’s growing fertilizer export controls are sending global buyers in search of alternative suppliers.
Brazilian farmers are slowing fertilizer purchases as the drought reduces safrinha corn production prospects.
Attacks in the Red Sea haven’t stopped fertilizer shipments – yet. But urea remains at the highest risk for rising prices.
2023 was a year punctuated by easing fertilizer prices, which had set record highs in 2022 in the fallout of Russia’s unprovoked invasion of Ukraine. So will that trend continue in 2024, or should producers brace for higher costs?
For the first six months of the year, there is a strong argument to be made for some further price easing due to Brazilian crop delays. But there could be some fertilizer outlook murkiness ahead as uncertainty in the Red Sea and over China’s fertilizer export prospects could constrain global trade flows in the months ahead.
China ups production but tightens exports
China’s November 2023 fertilizer output grew over 11% annua from last year’s production to nearly 5 million metric tons, according to data released by China’s statistics bureau early Monday. However, even with the rising Chinese fertilizer production output, many of China’s previous fertilizer customers are opting away from booking fresh purchases of Chinese fertilizer products.
Over the past couple years, China has implemented export bans and extended inspection periods on its fertilizer exports to maintain domestic price stability. These constraints have led it to become an unreliable supplier to other Asian countries previously reliant on Chinese fertilizer supplies.
Related:China’s purchases lift wheat prices from muti-year lows
Specifically, China’s phosphate export bans have played a key role in pushing up DAP prices 26% higher across the world since mid-July 2023. China is the world’s largest phosphate exporter. It is also one of the top global suppliers of urea.
Top global fertilizer buyer India continues to purchase available Chinee urea supplies, but it is increasingly turning to suppliers in Russia and the Middle East. On Monday, a Singapore-based fertilizer producer announced a joint partnership with two Japanese companies to supply green ammonia produced in India to Japan.
Phosphate buyers in Malaysia – the world’s top palm oil producer – are acquiring more phosphate from Vietnam and Egypt. South Korea is in talks with Vietnam, Indonesia, and Saudi Arabia for future urea reserves for fertilizer and fuel additives.
Even though China’s stats bureau touted higher fertilizer production last month, its DAP and MAP export volumes are 12.5% and 10% lower, respectively, than a year ago. Total urea export volumes in the first half of 2024 are likely to increase slightly to 4 million metric tons, but those shipments likely won’t materialize until the second half of the year – long after peak planting and fertilizer application activities in the Northern Hemisphere this spring.
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Optimism from Brazil
But there was some good news for U.S. fertilizer price prospects over the past couple weeks. Dry weather in Brazil has caused farmers to hesitate on buying more fertilizer supplies for the upcoming safrinha corn planting season, expected to begin after soybean harvest is completed in the next month or so.
The fall in sales in the world’s top corn-exporting country could lead to lower prices across the globe, particularly for nitrogen inputs that are critical to corn yields.
“U.S.-based fertilizer producer Mosaic expects ‘safrinha,’ production, a Portuguese word referring to Brazil’s second corn harvest, to drop by 12% or 12.7 million metric tons, exceeding the Brazil government’s view of an 11.1 million ton drop from last year,” reported Rod Nickel, Ana Mano, and Sourasis Bose for Reuters on Monday.
“I would call it a very plausible downside scenario because of how late the crop’s going to go in, how dry it currently is and how it’s likely tha rains will shut down before that safrinha corn matures,” Mosaic vice-president of market and strategic analysis Andy Jung told Reuters, forecasting a 4% decline in Brazilian purchases of potash.
Brazilian farmers have only purchased 60% of its expected fertilizer supplies for the 2023/24 growing season, opting to wait for higher crop prices and more favorable weather conditions before booking more. In an average year, Brazilian farmers have already booked 80% of their fertilizers by this time.
Fertilizer producers and crop chemical companies alike are already bracing for lower Brazilian corn production in the coming months. FMC and Corteva have already had to cut retail prices on chemicals sold in Brazil to keep inventory moving. Through mid-December 2023, retail potash prices in Brazil were being quoted 36% lower than the prior year. As a result, these companies were reconfiguring production schedules late in 2023 to reduce output for the coming year.
U.S. fertilizer producer Mosac updated its fourth quarter earnings projections on Tuesday, providing fresh insights about current dynamics shaping the fertilizer market. The Florida-based company expects that its Q4 potash sales will fall towards the lower end of trade expectations (around 2.4-2.6 million metric tons) by the end of 2024 as dry weather conditions in Brazil are upending safrinha corn production prospects.
Phosphate volumes in Q4 for the company are also expected to come in low, between 1.6-1.8MMT. Again, uncertainty surrounding Brazil’s corn production in the coming months continues to be a major risk for big fertilizer producers.
The dry weather in recent months slowed soybean sowing past optimal yield windows. But Brazil’s safrinha corn crop – which makes up the majority of its annual corn production – is heavily dependent on optimal timing windows.
Since it is planted directly after the soybean crop, any delays with the soybean harvest could push Brazilian corn planting past its optimal yield indow. The lower price prospects paired with smaller yields could provide enough economic disincentives for Brazilian farmers to either cut down on input costs or even forego safrinha corn acres all together in the coming months.
Red Sea uncertainty
Through the early days of the conflict in the Red Sea, nitrogen fertilizer products have continued to flow freely. But risks remain for the urea market, as 50% of global exportable urea supplies are sourced out of the Middle East and North Africa.
About 25% of ammonia and another 14% of global potash exports also originate from the region. Major buyers of the region’s fertilizer supplies include India, the European Union, Brazil, and to a lesser extent, the U.S.
Shipments fertilizers destined for the U.S. have already been rerouted around the Cape of Good Hope in South Africa. U.S. fertilizer company Mosaic reported on Monday that a couple cargoes of the fertilizer purchased by U.S. buyers would rather avoid heightened risks on the Red ea and opt for a longer transport time instead.
Brent crude oil and natural gas prices have rallied since the attacks on Monday, which were caused by Houthi (an Iranian-backed Yemen rebel group) missile strikes on two cargo vessels in the Red Sea. Many shipping companies are evaluating more expensive and longer alternative routes in the wake of the attacks. Some ships have turned off their location transponders or have figured out how to ping alternative locations to avoid the rebel attacks.
These attacks are significant because the Red Sea is connected to the Mediterranean Sea by the Suez Canal and hosts one of the most efficient shipping lanes for global East-West trade between Europe, the Middle East, and China (as well as Southeast Asia).
The longer shipping times, farther distances, and increased risk profile spurred a rally in the energy markets during the first half of this week. It is the first significant international supply chain disruption markets have experienced since he waning days of the COVID pandemic and reinforces the significance of keeping these trade lanes safe and accessible.
These higher costs could spill over into the U.S. energy market and subsequently lift fertilizer prices. Urea will likely be the first market to feel the most extreme impacts of these re-routes and will likely see an uptick in price through early 2024 if the conflict continues.