Rabobank: Global fertilizer growth expected despite market challenges

Operating costs for farmers, especially for fertilizers, are returning to pre-Ukraine war levels, while at the same time commodity prices are falling. This combination has led to a squeeze on operating margins, which are now below the average of the past two years, making farmers more cautious about investing in their farms.

"Despite these headwinds, the fertilizer sector is showing resilience. Geopolitical factors, among other issues, could present further obstacles, yet the growth in fertilizer use is anticipated to persist," says Bruno Fonseca, Senior Analyst - Farm Inputs at Rabobank.

Agri commodity markets have entered the doldrums

Commodity prices are falling, with a number of factors exerting pressure on them. Record-level global stocks of corn and soybeans, bolstered by substantial crops in Argentina, Brazil, and the US, have created a buffer that has subdued market volatility. Meanwhile, Russia's record wheat exports have kept wheat prices in check, despite a global stock decline.

Investor outflows and concerns about a potential recession have also weighed on the market, although a tangible impact on demand has yet to be seen. Conversely, rallying crude oil prices since December 2023 have lent some support to agri commodities used for biofuels.

Producers respond to lower commodity prices by adjusting operation costs

"In response to falling commodity prices and tightening margins, producers are making strategic adjustments. By reducing crop area, they aim to realign supply with demand, even if it means operating at breakeven or negative margins," explains Fonseca.

Certain fertilizers are vulnerable to the decline in demand

Nitrogen fertilizer prices are on a downward trajectory, influenced by diminished demand and falling natural gas prices.

The phosphate market experienced a price surge early in 2024 when China shifted its focus to domestic needs, curtailing global exports. This trend reversed with China's resumption of exports in mid-March, though it remains to be seen if this will bring stability to the market. Despite a reduction in consumption forecasts, levels are still expected to surpass those of 2023.

Potash, on the other hand, is witnessing a robust supply due to increased exports from Belarus and Russia, leading to lower prices. While potash demand is projected to remain strong in 2024, it is uncertain how farmers will react to the price reductions.