ANZ and Rabobank look at the costs of fertiliser for 2023

According to some analysts, including Rabobank and ANZ, the price of production is expected to be lower this year.

Fertiliser prices have fallen by about half from their COVID-19 and Russia-Ukraine war spike and while prices are still high by historic levels, they are definitely a relief for farmers.

The predictions of a potential El Nino and drier conditions around Australia, has increased the importance of farmers using their inputs efficiently and managing input costs for the season.

This is especially true off the back of two record seasons in WA, where soils are depleted of important nutrients.

On average, Australian farmers will increase fertiliser application this season, according to Rabobank's research.

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This is the result of a decline in farm input prices after recent spikes, making fertiliser more affordable, said Rabobank associate analyst Edward McGeoch, as well as expectations of good returns from farming.

"Urea prices are expected to track around current levels, or with a minor increase, in the coming months," Mr McGeoch said.

Application of urea is projected to be up four per cent on last year, potash up 3pc and phosphate 2pc.

But Mr McGeoch said this would still be below the long-term average use of these fertilisers by Australian growers.

Traditionally, Australia is a big fertiliser importer which makes the country sensitive to global price fluctuations and movements.

According to ANZ analysis, urea makes up about half of fertiliser imports, at about 2.4 million tonnes, with imports accounting for about 90pc of usage.

Similarly, Australia imports about

1mt of Diammonium Phosphate, with imports accounting for about 85pc of usage.

Imports are also high for Muriate of Potash, though imports are lower for NPK fertilisers and Single Superphosphate.

In the past few years, ANZ has observed Australia slowly changing where they get their fertiliser inputs from - with imports from China decreasing by about 36pc.

UAE imports have also dropped by 31pc, while Qatar imports have dropped by 18 pc.

To make up for these decreases, fertiliser imports have increased from markets including Bahrain, Morocco, the United States and Trinidad and Tobago, according to ANZ.

Urea

Early in 2022, the beginning of the Russia-Ukraine war caused the price of urea to spike dramatically.

According to ANZ, not only is Russia a major exporter of urea, but the interruptions of supplies of Russian gas (a major component in urea production) to Europe caused further major disruptions in fertiliser production in other countries.

Since September 2022, urea prices have declined steadily until late March, when prices crossed the $450/tonne line, a drop of 58pc.

"A fall in natural gas prices, following the high prices after the start of the Ukraine crisis, provided fertiliser manufacturers with the ability to lower both production and sales costs," said an ANZ report.

"This scenario was enhanced by a greater than expected availability of gas in Europe, as a result of a mild winter, combined with strong liquid natural gas (LNG) imports."

Since then, the market has shown some price adjustments, however Rabobank forecasts remain similar for the coming months.

"Urea prices will likely hover at about $400/t and $500/t with Middle East providers," said a Rabobank report.

"The natural gas price is the most likely needle mover for the coming months, with significant price increases not forecast until Q4 2023."

While prices have fallen strongly, ANZ remains cautious arbout the potential for any major flare-ups in Ukraine crisis to push prices up again.

"As a result, there is some feeling in the market that prices may have hit their floor for the time being," a recent ANZ report said.

Phosphate

In 2021, China - which is the world's biggest supplier of phosphate-based fertilisers - imposed restrictions on its exports, causing prices to rapidly increase.

Rabobank said since peaking in June 2022, phosphate prices have been slowly decreasing by about $5 to $20 per week.

"As the supply chain is long and the market expects more exports from China in 2H 2023, the forecast for Australian prices is for further reductions," Rabobank said.

Globally, it predicts that application rates might recover to 2021 levels, but the idle industrial capacity is more than capable of supplying it.

Potash

According to Rabobank, the "demand destruction" that happened to phosphate was even bigger for potash.

So far, the international price has dropped from the 2022 peak by about 60pc and the Rabobank forecast continues to look bearish.

"Russia and Belarus are supplying non-traditional clients and still have 35pc of their export capacity to recover, compared to pre-war levels," Rabobank said.

That is equal to about 8mt, or 14pc of annual global trade.

While the fertiliser market has settled from its highs of two years ago, there are still some needle movers to look out for in 2023.

According to Rabobank, developments in the Russia-Ukraine war will impact the market - given that Russia also supplies a large amount of gas to European fertiliser manufacturers.

China's resetting of the export quota scheme and new trading routes following the 'decoupling of economies' are just some of the potential shocks in store for the 2023 fertiliser market.