Prices at historically high levels, tight supply and an unfavourable barter rate for farmers will likely see Brazilian importers purchasing lower fertilizer volumes in early 2022 and regularly throughout the year to meet domestic demand, while managing financial risks.
Join Camila Dias, Argus Brazil Bureau Chief, and Renata Cardarelli, reporter for the Argus Brazil Grains and Fertilizer publication. They talk about 2021 Brazilian fertilizer market highlights and the outlook for 2022.
CD: Hello and welcome to ‘Market Talks’- a series of podcasts presented by Argus addressing the events impacting commodities and the energy sector in Brazil and around the world. My name is Camila Dias, Argus Brazil Bureau Chief. In today's episode, I talk to Renata Cardarelli, reporter for the Argus Brazil Grains and Fertilizer publication, about 2021 Brazilian fertilizer market highlights and the outlook for 2022.
RC: Hello, Camila. It is a pleasure to be here.
CD: Renata, what is the outlook for Brazilian fertilizer prices in early 2022?
RC: The outlook for nitrogen, phosphates and potash are pretty much all the same in early 2022, Camila. Prices at historically high levels, tight supply and an unfavorable barter rate will likely increase fertilizer prices globally, leading Brazilian buyers to purchase lower fertilizer volumes in early 2022. Importers will need to buy in smaller batches and more regularly throughout the year to meet the domestic demand while managing financial risks. Farmers tend to reduce fertilizer purchases for the next cycle, and agronomic assessments might be done to guarantee the levels of nutrients needed for planting.
CD: Brazilian farmers usually buy fertilizers through barter rates. Renata, could you explain what it means and the effect of higher fertilizer prices on barter rates?
RC: The barter rate is the ratio between the price of a grains and a tonne of inputs – so seeds, pesticides and fertilizers – used to treat the crop. Barter rates have become less appealing to farmers who now have to provide more bags of grain to buy a tonne of a fertilizer NPK basket in the cities of Sorriso and Rondonopolis, both located in Mato Grosso state. Barter rates for Brazilian farmers are likely to be unfavorable during the first quarter of the new year. To quote The Beatles: Yesterday, all Brazilian fertilizer importers’ troubles seemed so far away, now it looks as though they are here to stay, at least in the short term. Which means: unfavorable barter rates and high fertilizer prices.
CD: Now, let’s go a bit deeper on granular urea, Renata. Urea prices rallied in Brazilian ports during 2021, is there any sign of relief in early 2022?
RC: You’re right, Camila, granular urea surged by $546/t 2021 in Brazilian ports, rising from $284/t cfr in late December 2020 to $830/t cfr in late December 2021. It is true that most January 2022 urea production remains unsold, beyond the volumes set by long-term contracts, but fundamentals do not show any sign of significant price declines in the short term.
CD: Interesting, which fundamentals would you say are key to keeping granular urea prices at high levels?
RC: Definitely raw material prices, Camila. Surging energy prices have increased costs for coal and natural gas, the raw materials used to synthesize urea, prompting the shutdown of some production units in Europe. Elevated urea prices have been further bolstered by restricted supply from China, which has imposed restrictions on nitrogen exports.
CD: Are fundamentals also key for keeping MAP 11-52 prices at historically high levels?
RC: Absolutely, Camila. Argus-assessed MAP 11-52 prices surged by $450/t at Brazilian ports in 2021 to $858/t cfr Brazil in late December. There are two essential countries in this market that are influencing global prices: Russia and China. And of course, Brazil imports a lot of MAP 11-52 from both countries. Morocco accounted for 39pc of all Brazil's fertilizer imports in 2021, followed by Russia at 30pc, Saudi Arabia at 14pc, and China at 11pc. But let’s take a step back, Camila. China and Russia have been imposing exports restrictions. Russian phosphate-based fertilizer exports will be restricted to 5.35 million tonnes through late May 2022, and Chinese restrictions are poised to last until June 2022. Limits may be lifted on some fertilizers earlier, however.
CD: So it means there will be less global supply, how would this affect Brazil?
RC: Brazil is now forced to compete with US importers for MAP 11-52 cargoes, especially from Saudi Arabia, Morocco and Mexico. Saudi Arabia and Mexico were the top two shippers to the US in 2021, with Saudi Arabia accounting for 24pc and Mexico accounting for 22pc of total US imports. Netback spreads between the Brazil and the US will be crucial for producers selling cargoes into these markets. So limited supply and competition among importers raise questions about how much farmers will be willing to pay for fertilizer.
CD: Now let’s talk about potash, whose prices also increased this year in Brazilian ports and are now at a historically high level. What’s the trend now?
RC: Global fundamentals point to a price increase at Brazilian ports in the short term because of tight supplies as the third largest global potash supplier, Belarus, comes under US sanctions. The latest sanctions announced by the US Treasury Department sets 1st of April 2022 as the deadline for US companies to end business dealings with Belarus Potash, its subsidiary Agrorozkvit and any firm in which both hold a stake of more than 50pc.
CD: But has Brazil also announced sanctions on Belarus?
RC: No, Camila, Brazil has not announced any sanction on Belarus, but sanctions imposed by the US government can have an extra-territorial effect, as they exclude Belarus companies from trading in the US financial system. Brazilian importers headquartered in the US and with strict compliance policies may also be required to stop purchasing from Belarus companies.
CD: Apart from fundamentals and specifically Brazilian scenarios, are there any other factors that could influence demand for fertilizers?
RC: Actually there are. It is worth mentioning there are projects under way that could boost fertilizer supply. For instance, there are potash mines in Belarus and in Laos that have completed commissioning and could add 1.25 million/t in global supply. Also, two new urea production plants in India are expected to start operations in the coming months. But the question is whether that will be enough to alleviate the global supply. Export restrictions, political sanctions, varying vaccination rates among countries and the distinct pace of recovery from Covid-19 in different countries dictate how much Brazil will have to compete against other fertilizer buyers. Another Covid-19 wave can also have a negative impact on the affected country’s agricultural sector, followed by a decrease in fertilizer consumption. To quote Yesterday, from The Beatles once again: there is a pandemic hanging over the world, and the pace of recovery will also dictate the rhythm of global development, highly linked to food and fertilizer industries. Let’s remember that around 80pc of the world’s soybean production is fed to livestock, which is directly linked to economic health, measured by the unemployment rate, consumption, and countries’ development indices.
CD: Thanks a lot, Renata.
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