Cheers, HarryShezza... getting bombed in your breadbasket sounds a bit painful to me
Bad news for farmers - fertiliser prices just hit record highs. But these ASX producers could benefit
Fertilizer prices up 30% since the start of the year due to the Russia/Ukraine war
Europe’s nitrogen capacity heavily exposed to rising gas prices
Ukraine Committee on Agrarian and Land Policy says a global food crisis is looming
Fertiliser is the latest commodity experiencing a parabolic price increase. CRU Group’s fertiliser price index has hit a new record high of $377 per metric tonne.
That’s a 30% gain since the start of the year and higher than previous record in 2008 – and the commodities analysts say the peak has yet to be seen
It all comes down to the Russia/Ukraine war.
“Fertiliser prices have reached a record high on the back of the war in Ukraine and its repercussions on trade flows,” CRU head of fertilisers Chris Lawson said.
“Russia is a key exporter of nitrogen, phosphate and potash fertilisers.
“Trade with Russia has not stopped but slowed significantly as importers and vessel charterers steer clear of the country.”
Urea impacted by Europe’s gas crisis
Plus, gas is a key input for fertiliser production – especially urea which is the most commonly used nitrogen fertiliser.
This means that Europe’s nitrogen capacity is heavily exposed to rising natural gas prices.
“High gas prices have resulted in a curtailing of production in regions such as Europe, further constricting an already tight market,” Lawson said.
Plus, he says that sanctions in Belarus have huge implications for the potash market. Combined with Russia they contribute around 40% of traded volumes annually.
In Australia and Southeast Asia region, the demand for urea annually is approximately 2Mt and 24Mt respectively.
And we import nearly all our urea, with a good 70% of it from the Middle East and China. But tensions around supply have been mounting after China announced an export ban in August last year and then Russia also restricted nitrogen and phosphate fertiliser exports for a period of six months from December 1 – and then it went to war.
Prices were already increasing before the conflict
Lawson said that since the beginning of 2020, nitrogen fertiliser prices have increased fourfold, while phosphate and potash prices over threefold.
“While farmers in developed markets have benefitted from high agricultural commodity prices, helping to partly offset high input prices, demand destruction is increasingly likely due to high prices and supply shortfalls,” he said.
“Fertiliser/plant nutrition is one of many variables in farming systems and a prolonged period of fertilizer underapplication will impact longer term yields.
“Given the already tight grains and oilseeds market, and the importance of both Russia and Ukraine in those markets, food price inflation is an increasingly prominent risk.”
Even in Brazil, there are reports that farmers who were waiting for fertiliser prices to decrease have been caught short
The world relies on Ukraine for vegetable oils and grain
Not only are we lacking in the fertiliser to grow crops, but last week the Ukraine Committee on Agrarian and Land Policy said a global food crisis is looming.
Ukraine is the leading exporter of sunflower oil and meal in the world. It exported around 5.4 million of the total 10.9 million tonnes exported in the FY21 financial year.
And according to the European Association of Producers and Processors of Vegetable Oils and Fats (FEDIOL), European processing plants receive 35-45% of oil from Ukraine.
“Available stocks in the EU are estimated to last between four to six weeks,” FEDIOL said.
“Beyond that period, it is likely that lack of availability of crude sunflower seed oil and limited alternatives will lead to a shortfall of refined/bottled sunflower seed oil on the European market, and that this will be felt up to the consumer level.”
Plus, the country is in the top five exporters of grains and legumes.
To put that in context, around 400 million people globally depend on grain supplies from Ukraine.
Our breadbasket is being bombed
Last week UN Secretary-General Antonio Guterres said the world is heading for a “global hunger meltdown,” with developing countries already struggle to recover from the pandemic, record inflation, rising interest rates and looming debt burdens.
“Now their breadbasket is being bombed,” he said.
“Food, fuel and fertiliser prices are skyrocketing. Supply chains are being disrupted. And the costs and delays of transportation of imported goods – when available – are at record levels.
“All of this is hitting the poorest the hardest and planting the seeds for political instability and unrest around the globe.”
He flagged that 45 African and least developed countries import at least a third of their wheat from Ukraine or Russia, with 18 of those importing at least 50 per cent.
“We must do everything possible to avert a hurricane of hunger and a meltdown of the global food system,” Guterres said.
In response, the UN has now established a Global Crisis Response Group on Food, Energy and Finance, based at the Secretariat in New York, to be overseen by Deputy Secretary-General, Amina Mohammed
HIGHFIELD RESOURCES (ASX:HFR)
The Spanish player’s two-phase Muga project is expected to produce 1 million tonnes of potash per annum at half the capital expenditure intensity of other potash producers.
Economics are similarly robust with net present value and internal rate of return of €1.97bn ($3.1bn) and 25 per cent respectively while earnings before interest, taxes, depreciation, and amortisation is estimated at €310m.
This quarter the company is aiming to secured financing and progress towards construction of the project.
HFR had cash at bank as at 31 December 2021 of $22.24 million
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