War in Ukraine, disruption to global supply chains, galloping shipping prices, food security concerns…it’s hardly surprising that when Ravensdown’s Mike Whitty is asked for a fertilizer situation outlook he says “extreme volatility, and that’s not going to change for the foreseeable future”.
Mike, Ravensdown’s General Manager Supply Chain, was the expert speaker in a Federated Farmers ‘What’s up with fert?’ webinar earlier this month. As the host and Federated Farmers Arable Chairperson Colin Hurst commented, New Zealand farmers are fortunate to have two co-operatives – Ravensdown and Ballance – which work to smooth out the rough edges of sudden spikes in global prices and supply shortages.
“It would be a different story with a corporate model,” Colin said. “Just look what happens with fuel. The prices spike offshore, and we feel it at the pumps the very next day.”
Fertilizer features in the top three expenses for most farmers alongside the costs of labour and capital, Colin said. Farmers and growers in New Zealand use 2.7 million tonnes of nutrients annually, and the combined revenue of the two big fertilizer co-ops total $1.6 billion.
So what are the factors behind rising fertilizer prices in the last couple of years?
Mike described a massive amount of stimulus around the globe going back to 2020, with a focus on food. Shortages and rising prices for wheat and other grains, on the back of low inventories internationally, have sparked food security concerns in a number of countries. While New Zealand has benefited from strong returns for meat and dairy “we’re starting to see the likes of Vietnam, Turkey, Egypt, Russia and China bring in regulations to look after their own security, particularly around nutrients and food,” Mike said.
China, the largest producer of fertilizer in the world and a significant exporter, put fertilizer export controls in place last year and the effect on supply and price was immediate.
The COVID pandemic is punching big holes in workforces, and transport and infrastructure sectors have been hit really hard.
“At the same time we’ve seen sanctions – in the past on Iran, a big producer of Nitrogen, and on Belarus, so that’s potash.”
Now we’ve got Russia’s attack on the Ukraine. Both countries are significant producers of fertilizer, and exporters of gas and fuel to Europe. A 400-500% surge in energy prices in Europe has curtailed their Nitrogen production and they’ll be looking elsewhere for product.
When the constraints from China came in, the free on board urea price went from about $US350 to as high as $US950, but eased in January and February as demand also eased.
But prices are now surging again with the war in Ukraine.
Product, freight and currency are Ravensdown’s biggest expenses and the co-op takes forward positions on all three to ride out the market bumps.
On the freight front, shipping companies were losing money in 2020 with vessel daily hire rates “unsustainably low”, Mike said. But then pandemic and other pressures came on and hire rates surged 400%, only easing at the start of 2022.
“So we’re probably up about 300% on bulk transport from the [2020] low. However, containers are up 400-600% is a very, very challenging market to pick.”
Ravensdown’s ability to insulate shareholder farmers from the worst of this global buffeting is because the co-op has pursued a strategy of enduring supplier relationships, a bulk shipping joint venture, and a strong stock position, Mike said.
“We’ve worked really hard with our suppliers. They’re extremely professional and they’ve had really good protocols in place around COVID. So generally they’ve had little if any pandemic impact. Many of them control the whole supply chain, so if we can get a vessel to them, they can load it.”
Ravensdown also works hard to place orders with significant lead time, and suppliers appreciate the surety.
“We were already ordering products late last year for the coming spring.”
Strong stock positions mean the co-op was able to hold the superphosphate price through to 31st May. Ravensdown also anticipated the reduction in urea prices that came about in January and was able to hold its prices until that occurred.
They’ve also picked up different products just to make sure they could supply the market. Last year, with potash supply looking shaky, Ravensdown purchased some standard potash, which is not really suitable for arable, but could be used with superphosphate for pastoral systems.
Mike said the co-op’s shipping joint venture has paid “huge dividends” in the last two years, both financially and operationally. “We’ve been able to get ships to fill the gaps that have arisen with these issues around the world.”
What about going forward? Mike was asked if Ravensdown was worried about product outages given the Russia/Ukarine/Belarus turmoil.
“All of our autumn purchases are either in store or on the water. So currently we don’t see any issues around supply going through the autumn and into winter,” Mike said.
Ravensdown expects China to come back into exporting fertilizer in the about the middle of this year, which will be positive of urea and phosphate prices.
The co-op is getting most of its potassium out of Canada from Germany-owned company K+S AG. Before then it had been buying from Belarus – “and they were a very good supplier” – and from Russia, before those supplies were disrupted.
Won’t other countries also turn to Canada for potassium, with demand hiking prices, given the sanctions being placed on Russia and Belarus?, another webinar participant asked.
Mike said those two nations account for nearly 40% of potash exports and Europe relies heavily on this. He thought it unlikely that sanctions would totally ban fertilizer and potash imports from Russia – if they did there wouldn’t be enough potash supply anywhere in the world. The next four to eight weeks would show more clearly the impacts of the Ukraine conflict and sanctions on Russia on fertilizer supply and prices.
Mike’s final advice to farmers was that with good fertilizer stocks in store it could pay to be proactive about getting nutrients on paddocks if levels justified it.
“Certainly in the North Island in autumn there’s a real lack of spare capacity around application and transport. Let’s get moving to utilise those applicators and transporters who are available now.”