The president of Yara International, Svein Tore Holsether, is worried that the production of food may be affected by the tightening of fertilizer supply. Yara International is the largest fertilizer firm in the world, producing, distributing and selling nitrogen-based mineral fertilizers and related industrial products.
During the company’s most recent conference call, Holsether stated that Yara was deeply concerned about the state of agriculture globally, noting that global food supply couldn’t be maintained without nitrogen.
The increase in the price of natural gas has forced manufacturers of fertilizer to cut down production amid the escalating food crisis. The latest data from the USDA’s Economic Research Service estimates that there are about 1.3 billion food-insecure individuals in 77 low-income and middle-income countries. This figure represents a 10% increase from the figures recorded last year and is attributed to the war in Ukraine and the coronavirus pandemic.
It is expected that farmers across the globe will likely reduce their nitrogen fertilizer application rates because of the high prices of the essential crop input. Yara also expects that global grain yields will decline by about 43% in one year if no nitrogen is applied to the soil. While this may not happen, there will be a reduction observed in how much nitrogen will be applied because of the tightening of supplies.
The European Union, which supplies 15% of finished nitrogen fertilizer products globally, has already reduced production. Restrictions imposed on the supply of natural gas to the EU have led to stalling in almost one-half of the European Union’s production capacity. Spot gas prices in the region have increased by 248% this year in comparison to figures from last year’s third quarter.
During the conference, Holsether revealed that the production costs of urea exceeded $1,500 per ton on various occasions during the third quarter. He also revealed that during the third quarter, Yara operated at 57% of its production capacity in the EU. This is quite a drop from its usual production capacity rate of 80% to 90%. As a result of this decline, the company’s fertilizer deliveries dropped by 26% in comparison to the deliveries recorded in the third quarter of 2021.
Holsether also noted that supply available from China and other locations had also decreased. Currently, fertilizer inventories are at very low levels in the EU with the risk of a spike in price and even shortages increasing this winter, especially if it becomes harder to acquire natural gas.
Manufacturers such as Compass Minerals International, Inc. (NYSE: CMP) have also felt the pinch caused by the supply chain hiccups in the fertilizer industry, and are likely innovating solutions to retain their profitability while coping with rising inflation.
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