In a results update last week, the Norwegian-based fertiliser producer Yara said that “global farm margin outlooks and incentives for fertiliser application remain supportive (for prices) overall”. Clearly, the Europe’s largest fertiliser producer is seeing market justification for increasing fertiliser prices.

This confirms what has been happening for a number of years. Pricing has moved away from a cost-plus-margin model to one that is driven by market demand and what it can bear. As fertiliser demand has picked up around the world, the pendulum of pricing has swung back in favour of global producers.

Reference point

Yara noted that Chinese urea prices are a key reference point for global nitrogen pricing. It blamed higher production costs in China, which has resulted in significant curtailments and reduced exports from the country which is tightening global supply and causing prices to rise.

However, urea capacity has increased outside China in other key producing regions. Yara noted that this is above historical trend consumption growth rates. However, it said that the reduced availability from China and the higher cost of Chinese urea was offsetting the over-supply elsewhere in the world.

urea from other locations is currently priced at a discount to Chinese product

The lower exports of Chinese urea are also driving higher price volatility, according to Yara, as global market demand for Chinese product fluctuates through the year.

It noted that urea from other locations is currently priced at a discount to Chinese product, but only a modest improvement in global demand could push global prices closer to Chinese levels. Yara’s report concludes that such a scenario is likely, given the approaching spring application period.

In Europe, season-to-date nitrogen industry deliveries are in line with a year earlier, while producer stocks are below the five-year average. So far in the first quarter, Yara’s European nitrogen deliveries are slightly behind the same period a year earlier.

Based on current forward markets for oil and natural gas, Yara's spot energy costs for the next two quarters are expected to rise around €54m.

Yara’s outlook for supportive agricultural markets and its expected increased energy costs, coupled with a need to improve margins, looks like farmers should prepare themselves for further price increases.

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