The scene is set for a fertiliser price war as merchants and farmers thrash out deals to set new season prices. The end of 2022 saw the market softening with many farmers hoping the new year would bring about a significant drop in the cost of compound.

So far a price crash is yet to materialise but the market is softening. UK producer CF has issued its first AN price offer since August at £700/t for March delivery which is £150/t less than its last offer in August. However, many observers anticipated CF might be more aggressive in their initial offer as a way of slashing the AN premium over urea in UK markets.

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Meanwhile DAP a dipped slightly this year with the import price sitting between £660/t to £790/t delivered to UK ports. MOP is being priced around £640/t plus delivery and CAN at £580/t. The big outlier is urea at under £600/t which is best value on a per unit with the price pushing a number of Scottish farmers to switch.

The futures wheat price this week was around £220/t and quotes for 34.5% N were around £700/t which puts a price ratio of over three to one. This means farmers need to sell over three tons of wheat for a ton of fertiliser where a few years ago it was a ratio closer to one and a half tons of wheat to a ton of fertiliser.

The falling market is holding back farmers from purchasing fertiliser for spring work as many hope to take advantage of a falling market. However merchants are keen to point out that this could lead to distribution problems closer to sowing and major frustration in the fields.

At the tail end of last year, the EU lifted all import duties for nitrogen fertiliser coming into the trade bloc for all nations apart from Belarus and Russia. When The Scottish Farmer asked Defra if the UK Government was going to follow suit, a spokesperson said: “We welcome industry views on the anticipated impact of the EU’s decision on import tariffs and will monitor developments closely. We will keep the UK’s position under review.”

Last year, many EU growers switched to imported urea which predominantly came from Egypt and Algeria in North Africa who already enjoyed zero rate tariffs into the EU. But, as more urea producers gained free market access – mainly countries in the Middle East and Nigeria – the increased supply which should put a downward pressure on EU prices. US market reports state that the urea price has fallen below $550/t (£453/t) at the start of 2023 as concerns about a shortage has eased. The moderate European winter and abundant liquid nitrogen gas imports has helped keep production ticking over, as well as India buying significant amounts of Russia product at a world discount which has depressed the global market.

However European producers such as CF appear to be confident that UK farmers will stick with AN fertiliser as their prices remain at a strong premium over urea.

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Jennifer Willis-Jones, the urea analyst from CRU Group, said: “We have seen a rise in urea imports and it will be interesting to see if farmers switch back to nitrates from urea this year or they stick with it. Urea is not a bargain by any stretch but it is a cheaper product. The greater free market access for more fertiliser producers to the EU will drive competition and should cause prices to dip.”

Europe has been a premium payer for fertiliser throughout 2022, with farmers often paying $200/t more than global prices. However, Ms Willis-Jones predicted the European premium may shrink as more countries gain free access and stop paying the 5.5% to 6.5% product tariff.

NFU Scotland has been calling on the UK Government to recognise the strategic importance of fertiliser and, given the growing food security crisis, put support for domestic production in place. The call was made following the recent UK Government summit on fertiliser, hosted by Minister of State for Food, Farming and Fisheries, Mark Spencer, and attended by NFU Scotland’s combinable crops committee chair, Willie Thomson.

Mr Thomson said: “The exceptional rise in input costs across the board is hitting growers hard but a 200% increase in fertiliser prices, driven primarily by the dreadful war in Ukraine makes planning arable production in 2023 very difficult.

“We also need to investigate why fertiliser is cheaper in parts of Europe, including France, than in the UK and we welcome a commitment at the meeting to progress fertiliser market transparency work. As part of that work, we will look to the UK Government to assess and, where necessary, improve port and rail capacity to support fertiliser imports to all parts of GB.”