Could Fertilizer Price Increases Have Reached Their Peak?

Compass Minerals International, Inc. (CMP)</a>The ongoing Russia-Ukraine war has had major economic consequences as both countries supply a number of critical goods to dozens of countries worldwide. Russia is responsible for almost 20% of the mineral fertilizers on the global market, with the figures from the World Bank showing that it exported 12.1 billion pounds of fertilizer in 2019.

Mark Goykhman, chief economist at TeleTrade Information and Analytical Center, noted that Russia is the third-largest producer of phosphate fertilizers after China and Morocco. Collectively, both Russia and Ukraine export 28% of nitrogen, phosphorous, and potassium fertilizers worldwide.

Western sanctions against Russia, coupled with the war, have led to widespread supply chain issues and caused the prices of goods such as fertilizers to soar to unseen heights. Since fertilizer prices were already trending upward before the war, Russia’s unprovoked invasion of Ukraine exacerbated the issue and significantly contributed to a rise in global food insecurity rates. Based on recent developments, however, we may have seen the worst of the extended price rally.

Like Russia, Belarus is a major player in the global fertilizer market, reporting annual potash exports of $2.5 billion to the European Union, Brazil, India and China before it stopped publishing mineral fertilizer export data in June 2021. The move to stop sharing statistical information on fertilizer exports was done as part of Belarusian efforts to undermine American sanctions against the country’s regime.

Both countries — Russia and Belarus — share a common export policy and a significant percentage of mineral fertilizers from Belarus are exported via Russian ports. But in recent months, fertilizer exports from Russia and potash exports from Belarus have dwindled.

Russian Fertilizer Producers Association head Andrey Guryev states that if fertilizer from both countries doesn’t reach its customers, it could impact the 2022–23 harvest and trigger a significant food crisis. And since these countries are major global fertilizer exporters, it will be virtually impossible for the European market to quickly replace the volume of fertilizers they export.

Independent Russian analyst Leonid Khazanov predicts that fertilizer prices will “fly up into the stratosphere” if Russia halts its fertilizer exports. He estimates that should that happen, the price of carbamide could soar from the already high $1,000 per ton to more than $2,000 or even $3,000 per ton.

With natural gas prices soaring as well, Khazanov does not see carbamide and nitrogen fertilizer prices reducing in the near future.

Supplies from Russia and Belarus will continue to dwindle due to logistic issues, stated Sergei Grishunin, NRA rating service managing director, adding that plenty of international travel companies refuse to transport Russian goods. Furthermore, foreign businesses have also refused to insure cargo transported from Russia, and the country has also had issues with financial clearing.

Guryev added that these barriers have “destroyed the logistic schemes and supply chains” Russia used to transport fertilizers and caused prices to soar, despite the efforts of companies such as Compass Minerals International, Inc.(NYSE:CMP) to bridge the supply gaps in the market.

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