Fertiliser margins grew as farmers struggled with cost

As farmers paid €900/t for urea since December, Irish Farmers Journal analysis shows that the average price of fertiliser imported between October and December (Q4) was €643/t.

Urea prices and margins in the sector appear to have soared. It was a similar scenario for calcium ammonium nitrate (CAN).

Farmers paid €700/t since December, while the average import price in Q4 was €380/t.

Considerable concern

While there is currently considerable concern over availability of fertiliser supply, the total volume of agricultural fertiliser imported in the second half of 2021 was in line with 2020. Overall volumes were down 6%.

The Irish Farmers Journal has analysed CSO data that records volume and price of fertiliser imports.

The product lines analysed account for 82% of imports of agricultural fertiliser in the second half of 2021.

Much of the fertiliser imported into Ireland in July, August and September (Q3) is for immediate use. Product imported in October, November and December (Q4) is generally stock-building for new-season fertiliser in spring. In a typical year, some of this would be bought forward by farmers.

CSO import price does not include supply chain costs and margin including handling, transport, packaging and palletising, all of which increased in the past 12 months.

When buying in Q4, importers would likely have factored in some increased risk of a reduction in the market price at the back end of the season. This would have left them with higher priced stock in a falling market.

The prospect of a market downturn is now gone.

This data relates to the overall market. Buying patterns differ between individual fertiliser importers as do their contract obligations with merchants.

The average import price in Q4 2021 was €643/t. Almost 60% of Q4 imports landed in November at an average price of €650/t, 24% landed in October at an average of €471/t, while 20% landed in December at an average of €829/t. Urea import volumes (Table 1) between July and December 2021 were up 4% on the previous year.

Farmers have been paying on average €900 /t for urea (based on retail price lists in December), which is €257/t over the average import price in the October to December (Q4) period.

If total Q4 imported stock traded at this price, it would amount to a surplus of €18.2m from which supply chain costs and margin are covered.

Comparison

By comparison, farmers paid an average price of €400/t for urea last year, which was €148/t over the average import price for the 2020 October to December period. Similarly, if all this stock sold at €400/t, it would have amounted to a surplus of €7.4m. Some fertiliser imported in Q4 would typically be forward bought by farmers for spring stock.

The average import price of CAN in Q4 2021 was €380/t. Over one-third of Q4 imports were landed in October at an average price of €290/t, 35% landed in November at an average of €379/t and 31% landed in December at an average of €481/t.

CAN import volumes between July and December 2021 (Table 2) were down 8% year on year.

Farmers have been paying €700/t for CAN (based on retail price lists in December), which is €320/t above the average import price in the October to December period.

If all Q4-imported volumes traded at this price, it would amount to €22.5m from which supply chain costs and margin are covered. By comparison, last spring CAN retailed to farmers at an average price of €265/t, €97/t over the average import price for the 2020 October to December period.

If all Q4 2020 stock retailed at €265/t, it would have amounted to €7.1m.

Not all nitrogen in this category is CAN. However, it is likely to constitute a significant proportion.

The average import price of N, P, K combinations, eg 27-2.5-5, in Q4 was €463/t (Table 3). Half of Q4 imports were landed in November at an average price of €475/t, 20% in October at €351/t and 30% in December at €516/t. N, P, K import volumes (such as 27-2.5-5) between July and December 2021 were down 5% year on year.

Fertiliser prices soared rapidly in the last three months of 2021. Egyptian granular urea price increased from $456/t (€384/t) at the start of September, peaking at $935/t (€829/t) in mid-November (source: Investing.com).

Demand in the market was reported to be slow in the new year as prices fell and buyers stood back waiting for a floor. Eqyptian granular urea prices traded at $651/t (€573/t) in mid-February. However, the invasion of Ukraine and subsequent events have led to increased prices and real concerns regarding availability of nutrients.

The Profercy Word Nitrogen Index saw its single sharpest weekly gain last week, increasing by 55.5 points. According to Profercy, as buyers worldwide have moved away from Russia, urea prices are now breaking previous records.

Current April prices for Egyptian granular urea are trading at around $1,100/t (€1,000/t) which would deliver a farm gate price of roughly €1,100/t. Shipping has been disrupted since Russia invaded Ukraine and costs in the sector have increased. This is feeding into import costs.

The normal spring flow of fertiliser sales was disrupted last week as merchants moved to suspend sales.

As reported on page 8, Glanbia advised that fertiliser importers have suspended pricing and will be in a position to set a new price list next week.

The war in Ukraine, now in its third week, has resulted in significant disruption to fertiliser trade for farmers with an almost immediate upward impact on price.