Global demand for fertiliser remains ‘sluggish’ and is unlikely to see much growth in the remainder of the year, due to the ongoing pressures on operating margins.

That was the good news story highlighted in a Rabobank report which shows a neutral fertiliser affordability index, that is expected to turn negative later in the year.

While fertiliser usage has declined in the UK over the past few years due to increased costs, it’s a similar situation in the southern hemisphere where the crop season is fast approaching. Prices for phosphate fertilisers are higher than previous years and when compared to other fertilisers like potash.

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“With these fertiliser prices, plus the pressure on farmers’ operating margins due to low agri commodity prices, we do not expect fertiliser demand growth to return to 2023 levels over the next six months,” said Bruno Fonseca, senior analyst farm inputs at RaboResearch.

“Projections of strong global crop yields continue to pressure commodity markets, leading to lower prices and decreased operating margins for farmers.

“At the same time, prices for nitrogen (N) and phosphate remain above historical averages. Our affordability index suggests fertiliser affordability will move into negative territory within the next eight months,” he added.

The report shows that phosphate affordability has ‘significantly worsened in recent months’. Nitrogen and potash affordability indexes have shown stability, while urea prices experienced fluctuations due to supply issues at the end of June.

The potash affordability index saw a slight improvement through July, as the reduction in fertiliser prices offset the negative impact of commodity price deterioration.

Rabobank noted that agricultural commodity prices have persistently trended downwards this year, primarily driven by record or near-record corn and soybean crops in the US and Brazil, leading to massive global stocks.

“The implications of lower agri commodity prices are extensive. They are squeezing producer margins and impacting suppliers. Lower margins, in turn, impact the affordability of fertilisers, dampening demand,” Fonseca said.

However, a rise in natural gas prices, geopolitical events or an upcoming cold winter in the northern hemisphere, could affect future prices.

“Additionally, changes in phosphate export strategies from China and Morocco could have an impact. Finally, new Indian and Chinese tenders for potash are also important factors to watch,” Fonseca said.

When the expected margins for farmers and the global acreage of key agri commodities are taken into account, RaboResearch expects to see only marginal growth in fertiliser demand in the coming two years.

Natural gas prices in Europe have however risen noticeably in recent weeks. The European natural gas futures for October 2024 reached €45.15/MWh on August 9 – the highest since December 2023 and 36% more than the average price this year (Jan 1-Sep 4). While this was lower than the price at the same point last year, it is notable because gas prices were relatively stable before the recent steep increase.

The main reason for the recent surge in gas prices is geopolitical tensions, including the escalation of conflict in the Middle East and concerns over potential supply disruptions at the Russian-Ukrainian border due to the ongoing conflict.

Whilst gas prices play a key role in the cost of producing nitrogen, fertiliser prices also need to find appeal with farmers. With relatively low grain prices and a challenging 2024 growing season, the fertiliser market finds itself between the rock of volatile gas prices and a hard place of challenging farm cash flow.

In July, UK-produced AN (34.5%) for spot delivery averaged £338/t, which is £5/t (2%) higher than in June and £15/t (4.2%) lower than the same time last year. The average price for imported AN in July was £332/t, up 0.6% from June and 3.5% lower year-on-year.

According to AHDB, the solid reserve may provide some cushion against supply shocks going into winter, but the current high gas prices remain key when monitoring to future fertiliser prices.