Nitrogen fertilizer shortage expected to drive down yields worldwide
A shortage of nitrogen fertilizer will likely result in reduced world production of crops like wheat and corn, says an industry executive.
“We do think yield on a global basis is going to be off next year, not because of demand destruction but just because there’s not going to be enough tons available,” said CF Industries president Tony Will.
He told investment analysts listening to the company’s third quarter 2021 earnings results conference call that farmers in countries like India and other places that rely on government subsidies won’t be able to compete for limited supplies of products like urea.
Isaure Perrot, agriculture consultant with Agritel, had a similar message at a recent webinar.
She expects wheat production costs in France to increase by 21 percent to US$241 per tonne in 2022 due to sky-high nitrogen fertilizer prices.
The problem is particularly acute in Europe due to curtailed fertilizer production caused by the meteoric rise in natural gas prices.
It’s going to be an issue elsewhere and not just for wheat. Corn production costs are expected to rise by 19 percent in Ukraine and 14.5 percent in the United States.
The upshot is there will likely be a reduction in corn, wheat and canola/rapeseed acres around the world in 2022 because those crops are heavy users of nitrogen. Crops such as pulses, soybeans and spring barley will likely get an acreage bump because they don’t need nearly as much.
The one exception will be European rapeseed because it was already planted before the run-up in nitrogen prices.
Perrot also anticipates a yield drag for crops like wheat and corn as farmers cut back on the nitrogen they apply.
There could also be quality problems. Low protein means less milling and more feed wheat.
She is forecasting a sharp reduction in wheat production among the world’s leading exporters.
“This nitrogen fertilizer story could have an impact on production of more than 10 million tonnes,” said Perrot.
That would result in tight supply for the main exporters of the crop.
She believes the market has already partially factored this into prices but if the situation unfolds the way she thinks, a further price hike is likely in the cards.
Mike Nash, senior editor of fertilizers with Argus Media, said a perfect storm of events has led to the supply shortfall, including Hurricane Ida that caused CF Industries to close its huge production plant in Donaldsonville, Louisiana.
That prompted unusually early spot imports into the U.S. market with January through August urea imports running 800,000 tons ahead of last year’s pace.
Sky-high natural gas prices forced Ukraine to shutter half of its production capacity and there have been serious curtailments in the Netherlands and the United Kingdom.
Production is just starting to trickle back in Europe after serious cutbacks this fall.
More than 11 million tonnes of ammonia in Europe was not being upgraded into products like ammonium nitrate, urea and UAN, so Europe was forced to import granular urea from Egypt and other suppliers.
But urea is hard to find. Chinese production is limited by environmental controls, flooding, electrical blackouts and high coal costs.
On top of that, the Chinese are curtailing exports of urea through mid-2022, a big deal since it typically supplies about 5.5 million tonnes of the product annually or 10 percent of global trade.
India typically buys half of this. The restrictions couldn’t come at a worse time for them because September through January is their peak importing season.
Export restrictions have also been implemented in Russia and Egypt, but those are not as significant as China’s, said Nash.
The upshot is nitrogen fertilizer will be in short supply for the foreseeable future, said Bert Frost, senior vice-president of sales for CF Industries.
“We believe global supply will remain constrained in the near-term, with relief unlikely to appear anytime soon,” he said.
That means higher prices. Urea is three to four times what it was a year ago in markets like Egypt, France, Brazil and the U.S.
Will was asked if the high prices will lead to demand destruction but he said that is not the case.
“This is more of a supply constrained market. The demand is definitely there,” he said.
India is desperately trying to pull in product. Brazil’s imports are up 10 percent. CF Industries is reporting that orders for the first quarter of 2022 are generally very strong.
Will said new capacity coming on line in Russia and Nigeria won’t be enough to cover the current deficit and it won’t hit the market for a couple years.
However, Frost said there should be enough product to satisfy the needs of North American farmers who can afford to “bid away” tons from other regions of the world.
The company is anticipating the largest fall application program in the U.S. since 2012 followed by a strong spring, since current economics favour corn over soybeans.
Matt Conacher, senior manager of fertilizer with Federated Co-operatives Limited, disagrees with Frost’s assessment.
He offered up different advice for growers in Western Canada.
“Over the next few months, buy a good portion of your fertilizer needs and, if you can, bring it to farm to assure your supply,” he said.
Conacher said retailers are not going to want to be long on product heading into spring because they realize there is a very good chance prices will tumble during the summer reset period.
http://www.producer.com/crops/nitrogen-fertilizer-shortage-expected-to-drive-down-yields-worldwide/
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