News

14 Dec 2023

Fertilizer prices reached record highs in spring 2022 on the back of returning demand after the Covid-19 pandemic and tensions in the Black Sea region. This article reflects on the events of the last two years and analyzes why global food production remained high irrespective of the surging fertilizer prices.

Despite initial concerns, fertilizer supplies were impacted by the crisis only to a certain extent. When the Ukraine war started, Western countries applied trade sanctions on the Russian Federation and extended sanctions on Belarus. This created nervousness among market participants in view of the significant share of these countries for world fertilizer supply. However, fertilizers were eventually exempted from most of those restrictions and exports from these origins reached international markets through pre-existing or new logistical routes.

Another concern was rising production costs for European manufacturers, who faced escalating prices of natural gas, the main feedstock for most nitrogen fertilizers. While European fertilizer production did indeed take a hit, global nutrient supply was largely ensured by fertilizer production elsewhere. In addition, several governments supported domestic availability by limiting exports of locally produced fertilizers.

Looking at trade flows, not all countries were impacted by the crisis in the same way; several major food producing countries were also not the most exposed to availability constraints. China and the United States, for example, could rely on local production for much of their nitrogen and phosphate demand; Brazil and India continued importing fertilizers from the Russian Federation, often benefitting from two-tier pricing as products diverted from other destinations were looking for a home; and the European Union allowed more imports from far-away origins to make up for lost domestic supply.

The timing of trade requirements was also important. At the peak of the crisis in spring 2022, countries in the Northern hemisphere had mostly completed their fertilizer purchases. Since then, import demand has been rather sluggish, with countries shifting to just-in-time purchases to benefit from decreasing prices.

Finally, reduced global fertilizer demand as a result of the high prices did not translate into reduced global harvests. This can be attributed to several factors. For one, the price elasticity of demand varies across nutrients. Unlike for nitrogen, applications can be punctually skipped for phosphate and potash without major yield changes. Thus, although global uses of those two macronutrients did decrease over the last two years, negative effect on yields might have been limited.

In addition, some crops including soybean are nitrogen-fixing, meaning that they require comparatively low nitrogen doses and could fare better throughout the crisis. For crops that require stronger applications, the higher fertilizer prices were frequently buffered by higher selling prices of those crops for countries connected to world markets. What is more, application rates in several grain exporting countries are alrady relatively high, so lower application rates may have actually improved efficiency rates.

To summarize, the recent hike of fertilizer prices was undeniably a great source of concern for food security. While causing challenges at local scale the price hike nevertheless did not significantly impact outputs in major food producing countries. Going forward, the crisis highlighted the importance of a better assessment of fertilizer markets in a context of raising uncertainties on global trade. With the support of the G20, AMIS is building reliable information systems comprising up-to-date global supply and demand analysis, as well as comprehensive understanding of policies impacting fertilizers. Further efforts are required to collectively understand the complex impacts of changing fertilizer trends on food production in specific geographies.

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03 Nov 2023

With the onset of the Black Sea conflict in early-2022, an effective shutdown of Ukrainian export channels heightened fears about global sunflower oil availabilities and caused a broad-based spike in vegetable oils prices. How has the situation evolved since then, and what is the market outlook for the main vegetable oil types: soybean, sunflowerseed, rapeseed/canola and palm?

Soybean oil: Ample supplies expected in South America
With US biofuels producers absorbing record amounts of soybean oil, the country's export availabilities have dwindled and dispatches are projected at a record low in 2023/24. In contrast, Brazilian supplies have been more than sufficient to absorb domestic and international demand. Argentina, where volumes channelled to the biofuels sector are relatively small, remained the biggest exporter in 2022/23 despite a plunge in soybean production. In anticipation of bigger harvests and expanded processing, South American surpluses should be large in 2023/24.

Sunflower oil: Prices retreat sharply on expanded processing and exports
Reflecting expanded sunflowerseed supplies for processing in the Russian Federation and Ukraine, sunflower oil values have dropped sharply from their 2022 peaks. The Black Sea Grain Initiative was important in facilitating Ukrainian exports from early August 2022 until the suspension of the deal in July 2023, in addition to increased shipments across western borders to the EU. Despite the continuing conflict and logistical challenges, Ukrainian sunflower oil exports have been consistently large during 2023, with Russian suppliers also dispatching sizeable amounts. Amid heavy outturns and an uptick in processing, sunflower oil exports could rise further in 2023/24.

Rapeseed/canola oil: Trade at elevated levels
Heavy world rapeseed/canola outturns in recent seasons have swelled availabilities for processing and boosted rapeseed/canola oil exportable surpluses, most notably in Canada. Global trade is seen at historically high levels in 2022/23 and 2023/24, with rising demand also linked to US canola oil imports from Canada, including for biofuels sector use.

Palm oil: Plentiful supplies satisfy growing demand
For palm oil, the most abundantly produced and consumed vegetable oil, plentiful supplies have been central in keeping markets in check, with global production seen at a record in 2023/24. While industrial demand has risen significantly, shaped by biodiesel mandates in Indonesia, supplies have been sufficient to satisfy food consumption. Together with Malaysia, both countries have also been able to satisfy growing export demand.

Conclusion and outlook
After reaching historic peaks in 2022, international vegetable oils quotations have fallen steeply, with quotations of all types 50 percent or more below their recent highs. Looking ahead to prospects for 2023/24, markets will likely be characterized by sizeable harvests and expanded processing in leading vegetable oils exporters. On the demand side, food use will remain the largest component of uptake. However, biofuels mandates will ensure that industrial requirements continue to account for a sizeable – and potentially larger – share of consumption.

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06 Oct 2023

After years of cheap money, central banks around the world have been tightening the financial leash. In the United States, for example, benchmark interest rates currently stand at 5.5 percent; in Europe, they reach 4 percent, a new record since the introduction of the Euro. Why does all this matter for global grain markets?

One of the immediate effects of escalating interest rates is the restriction they impose on credit access for market participants. In the United States, farm lending softened considerably in the first half of 2023, according to a recent update from the Federal Reserve Bank of Kansas City. While agricultural production is unlikely to be affected this season, the elevated borrowing costs add to already high farm expenditures in view of still inflated input prices. If these trends persist, high interest rates could thus stifle long-term production growth.

Grain traders, who rely heavily on external financing to manage the time gap between grain procurement and sales, are also experiencing the ripples. Higher interest rates raise the costs associated with grain storage, as the increased cost of capital makes it more expensive to hold unsold grains. While alternative lenders, such as private equity funds, may close some of the funding gap, these are unlikely to fully replace traditional bank financing. Also, these alternative financial resources tend to be limited to larger firms, so smaller and medium-sized traders risk to be left out.

Rising interest rates also reduce liquidity in financial markets, including those for agricultural derivatives. Lower liquidity can in turn prompt investment funds to liquidate positions. This may result in a sell-off in grain markets and a consequent dip in grain prices, as observed earlier this year. The impact of the sell-off in March was particularly significant as it occurred amidst persistently high price volatility in markets. Adequate liquidity is pivotal for the smooth operation of markets, including price discovery mechanisms.

Higher interest rates also impact grain markets through a currency effect. Thus, the Federal Reserve raising rates can be expected to lead to a stronger US dollar. A strengthening of the US dollar will in turn drive up the cost of dollar-denominated grain imports, which is particularly problematic for low-income food deficit countries that rely on these imports to feed their populations.

Are these temporary phenomena that will subside soon? While the initial reversal in monetary policy was to respond to "transitory price inflation", central banks now emphasize that the return to price stability might require longer-term efforts. Thus, high interest rates seem here to stay, and with them the potential adverse impacts on agricultural markets.

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11 Sep 2023

In their recent meeting in New Delhi/India (9-10 September), heads of state and government of the world's largest economies (Group of Twenty - G20) re-confirmed their support to AMIS and committed to further strengthen global food market transparency. To quote the exact wording, the Leader's Declaration highlights support to AMIS and the Group on Earth Observations Global Agricultural Monitoring (GEOGLAM) "for greater transparency to avoid food price volatility, supporting AMIS’s work on fertilizers, its expansion to include vegetable oils, and for enhancing collaboration with early warning systems."

At the same meeting, the African Union was welcomed as a permament member of G20. The AMIS Secretariat looks forward to working with the African Union in expanding AMIS activities on the African continent.

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08 Sep 2023

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