Geopolitical issues weigh heavily on fertilizer markets

URBANA, Ill. — Swings in fertilizer prices have been the norm the past several years, swayed primarily by global market issues.

Kevin Johnson, Illinois Fertilizer and Chemical Association president, looked at the global fertilizer and agrochemical markets and factors impacting product availabilities during a breakout session at the Illinois Soybean Association’s Soybean Summit.

“The fertilizer market is impacted by weather, export tariffs and curbs, prices, planted acres, import tariffs, natural disasters, government payments, input costs, sanctions, farm income, taxes, interest rates, crop prices, regulations and other factors,” Johnson said.

“The Illinois Soybean Association has said half of their soybeans are exported out of Illinois.

“Ninety percent of the global nutrients in the world is moved outside where it originates from. We are even more affected by global issues than the soy industry is, and if there’s a bump outside our borders, it’s going to affect us.”

The United States is ranked third in nitrogen and potash consumption and fourth in phosphate use.

China is the world’s largest consumer of nitrogen, phosphates and potash. India is ranked second in nitrogen and phosphate use, and Brazil is second in potash usage.

Price Impacts

“Ammonia prices have ticked back up since the lows around late August, but I think we’re now more in a sideways trade range,” Johnson said.

“Everything with nitrogen starts with natural gas prices. Whatever happens to natural gas has a direct correlation to ammonia.

“There are currently 16 companies that are producing ammonia in the U.S. It’s going to be hard in the future to build another plant. I think that plants will be retrofitted or expanded.

“The last one built was in Weaver, Iowa. That started off as a $1.9 billion startup cost and it was well over $4.5 million when it was all done.

“Would I love to see one here in Illinois? Absolutely. Do I think it could get through the permitting process? Absolutely not.”

Russia and Belarus are major players in the ammonia and potash global markets, respectively.

“We saw ammonia go up. Russia exports 23% of the global ammonia. So, when they say they’re going to shut down stuff, it affects the market,” Johnson said.

Russia also exports 13% of the global urea, 12% of global phosphate exports and 19% of the potash exports.

“I think fertilizer prices are in a range-bound price right now. I think that’s about 80% true and the 20% that changes if (Russian President Vladimir) Putin does something different. If something comes out of Putin that he’s going to rock the boat, whatever I just told you is out the window.

“All of the fertilizer prices started ticking up when Putin invaded Ukraine. Russia is curbing all exports. They’re huge in the global urea and phosphate markets.

“Belarus is pretty much a dictatorship and exports 22% of the world’s potash. For a time, no country was dealing with them. The global potash market is huge to Belarus. There was sanctions on Belarus and only Russia was taking part of their stuff.”

Among the largest drivers of fertilizer prices in 2024 is weather in the United States and Brazil; political unrest — what happens in Russia, the Red Sea and China; microeconomics; and supply chain issues.

“Geopolitical issues dictates fertilizer markets more than anything,” Johnson said.

Nitrogen/Natural Gas

Nitrogen supplies from key regions remain constrained into 2024.

“Russia is exporting natural gas, but it’s not at the clip it was before,” Johnson said. “During the natural gas price hike, Europe shut off its online capacity because of costs. If you compare our natural gas prices to Europe’s, there’s a 10 times difference.

“If it’s $2 in the U.S., it’s going to be $20 or higher in Europe. When natural gas was $7 here, it was $47 in Europe. Europe is now back to the $15 level for natural gas. That capacity has came back online.”

Imports

The U.S. net imports of nitrogen products were historically low from July to December 2023. The imports are currently on the rise, but still not back to pre-COVID numbers.

Chinese diammonium phosphate and monoammonium phosphate exports increased in 2023, but restrictions continue to lead to lower-than-average volumes.

“China is still holding on to their DAP and MAP. They just see it as, ‘We’re going to keep that home. We have to feed our people first and we’re going to feed our agriculture first,’” Johnson said.

“They are back to exporting, but not at the clip it was on a five-year average. The same thing with potash production in Belarus and Russia — it is not back to what it was before.

“We don’t get that much potash from outside North America. Most of our potash comes from Canada.

“Two-thirds of the potash that comes into Illinois is railed here from Canada, but when sanctions started on Belarus and Russia, that affected everybody else, and all those countries were going back in the world market trying to buy. So, it drove everything up.”

Key Drivers

Current prices are supportive for improved fertilizer demand in 2024, but supply volatility remains a source of uncertainty, including the following scenarios:

• Urea prices have strengthened slightly in 2024. The world nitrogen market is tied to urea prices.

• Global ammonia prices declined on weak seasonal demand and anticipated supplies. “We had pretty good demand here. I think we actually had great demand all fall, especially in the southern two-thirds of Illinois. It was pretty dry and if you wanted to get ammonia on, you got it on. We are ahead of the game, at least in Illinois going into the spring season,” Johnson said.

• On the phosphorus side, China’s export restrictions have kept global supplies and demand tight. There is potential for trade flow shifts to impact markets in 2024. “I do think the P levels will remain strong,” Johnson said.

• For potassium, North American supply and demand is relatively tight, “but I think most, at least here in this part of the world, got what they wanted on,” Johnson said. “Again, if nothing happens globally, I think we’re in a range-bound price range on ammonia and most of this stuff. I don’t think we’re going to go $1,600 ammonia, but I don’t think we’re going right back to $500, $550 ammonia, either.”

Pesticides

Formal pesticide misuse complaints received and investigated by the Illinois Department of Agriculture peaked in 2019 with 971, 723 of which were for dicamba.

Misuse complaints dropped to 346 in 2020 with 145 for dicamba. There were just over 250 complaints last year and 37 were dicamba-related.

There were 27 consecutive years before 2017 with less than 200 complaints annually to IDOA.

Johnson said the pesticide misuse complaints to Illinois Department of Natural Resources in relation to trees is an issue that needs to be addressed.

He pointed out headlines last spring in the Champaign News-Gazette of herbicide drift damaging trees in a Seymour subdivision.

“This is the one we’re going to have to work on more and more. We have had those tough conversations with our environmental friends in Springfield. I remember them telling us, ‘You kill each other’s soybeans, that’s one thing, but when you kill the trees, then we’re going to have real issues.”

Legislative Issues

Johnson noted there are anti-pesticide bills currently in the Illinois General Assembly, including legislation aimed at local control of applications and seed treatments.

SB 2757 amends the Illinois Pesticide Act and would expand the authority to regulate pesticide use to local entities within a county with a population over 2 million.

“Pesticide preemption is probably one of the most positive things we have in the industry. It means that the state of Illinois regulates pesticides rather than, for example, Champaign County, or city of Urbana. The Illinois agriculture director has full control over that,” Johnson said.

“Someone may say they don’t want the agriculture director to control that, but right now that is where you want it. If you are going to try and battle every local town, it’s going to be hard.

“This legislation by Sen. Laura Fine (D-Glenview) says a county of 2 million or more, which is Cook County, can regulate their own pesticides.

“The city of Chicago does have authority to regulate its own pesticides, but they still defer to the state. This legislation would let any town, any subdivision, in a county of over 2 million residents to ban pesticides.

“This is an issue for IFCA that there’s no negotiation on. We will fight for preemption with all it’s worth. This a very big issue that we’re watching and is probably our No. 1 concern.”

House Bill 4558 is aimed at banning neonicotinoid pesticide use.

“Neonicotinoids are your seed treatments. This would ban it in the state of Illinois-owned lands. If you farm University of Illinois ground, that also falls under the provisions,” Johnson said.

“That bill has been out there for a while. The only reason I bring this bill back up is it’s been out there every year that I’ve been around, but the state of New York did ban neonicotinoids in seed treatments on all agricultural land.

“So, I think there will be a renewed effort in a lot of states, not just here in Illinois, on seed treatments.”