AUSTRALIAN farmers are taking full advantage of low global fertiliser prices, but Rabobank has warned that COVID-19 had amplified the risk of isolated shortages and resulting price increases.
Rabobank’s recently-released Global Fertiliser Outlook said long-awaited favourable seasonal conditions across most regions and a so-far unscathed supply chain will ensure urea application continues full steam ahead on Australian farms – despite COVID-19 supply risks.
However, report co-author Rabobank agricultural analyst Wes Lefroy said circumstance will be different for every farmer, but given how favourable current fertiliser prices were, depending on freight costs, “it is an extremely favourable time” for farmers to lock in supply contracts.
“Australia is heavily reliant on global imports and, in light of the pandemic, risks are higher than usual – any COVID-19-related interruption to freight may impact availability of urea during winter and spring, especially for orders at short notice,” he said.
Shortages, caused by either freight interruptions or excessive local demand may cause local prices, and basis, to sharply increase.
Mr Lefroy said it was remarkable that there hadn’t been more interruptions to fertiliser supplies due to COVID-19, but there was a heightened risk.
“We haven’t seen disruptions to production across the globe, freight seems to be flowing in.
“Australia had one of its biggest import months on record for urea for the last five years during May,” he said.
Mr Lefroy said fertiliser freight across borders has also been flowing.
“But if we do see any circumstances change, there could be interruption, which could impact shortage.”
He said a good season can also increase demand and create isolated shortages that might inflate prices.
Rabobank’s semi-annual report said overall global fertiliser prices were either at, or near, 10 year-lows, with the plummeting cost of raw materials, growing production capacity and mediocre demand keeping prices of nitrogen (urea), as well as phosphate and potash down.
Mr Lefroy said one of the key factors driving down prices was the falling cost of energy. The abrupt drop in fuel demand during COVID-19 lock-downs forced the price of natural gas down 46 percent (UK NG ICE) and coal 11pc (ZCE Thermal Coal) – both critical to the production of urea and processed phosphates.
Australian urea applications increase
The report said the bank expected Australian winter-crop planted area would increase by 26pc this year, up 12pc above the five-year average, boosting urea demand.
With La Nina conditions a possibility this spring, Mr Lefroy said, urea application would continue in earnest.
Mr Lefroy said a higher-than-previously-expected Australian dollar had supported growers’ purchasing power in recent months, but Rabobank expected the Australian dollar to weaken to US64 cents over the next six months – taking some of the shine off the low global price for Australian farmers looking to lock in fertiliser contracts ahead of next season.
Lower cost of production to keep prices down
With global nitrogen prices currently sitting at their lowest value since 2017, Mr Lefroy said lower cost of production, and ongoing low global demand, would likely keep prices down.
Indian suppliers are expected to increase ammonia and urea production in 2020 in response to increased domestic demand, reducing India’s significant dependency on the international market. Coupled with low cost of production, this increased international supply is forecast to keep prices at lower levels during at least part of quarter three.
For phosphates, he said, the global outlook would be greatly influenced by input costs, but low commodity price levels and the low cost of raw materials may limit any price increases.
“With utilisation rates at current levels, cheap inputs and commodity prices not incentivising any extra demand, it is difficult to see much upside for phosphate prices on a global level for the next six months,” Mr Lefroy said.
For potash, he said, regional prices were expected to be influenced by supply contracts in China and India, with their contract prices used as a reference for some potash importers in South America and Southeast Asia.
“With the main demand season getting closer, the prices of potash in these regions are expected to stabilise slightly above those ones locked on contracts,” he said.