Fertilizer affordability weakens in 1Q24 on higher N, P

Global fertilizer product affordability trended lower through most of the first quarter of 2024, as crop prices slid on higher expected global supplies, while nitrogen and phosphate fertilizers remained at high levels before coming under pressure in the second half of March.

The decline in nutrient affordability this quarter comes at a time when farmers start preparing for the spring fertilizer application season in the northern hemisphere.

The Argus fertilizer affordability index ⁠— a global assessment calculated using the ratio between the fertilizer and crop price index ⁠— fell to the lowest quarterly average since the fourth quarter of 2022.

Nutrient affordability weakened by 10 percentage points since the start of the year, to 1.03 points in March from 1.13 points in January.

An affordability index above 1 indicates that fertilizers are more affordable compared with the base year, which was set in 2004, while below 1 indicates lower nutrient affordability.

High urea, phosphate prices weigh on affordability

The fertilizer index ⁠— which includes international prices for urea, DAP and potash adjusted by global usage ⁠— has reached the highest quarter average since 1Q23, owing to high urea and phosphate prices.

Urea prices surged through the second half of January, following a bearish end to 2023, initially spurred by short-covering and fresh demand from European markets in the wake of an Indian purchase tender. Levels out of Egypt jumped by around $70/t through the month to over $400/t fob for European markets.

Prices remained firm through the first half of February, supported by strong demand from Australia and Thailand, as importers warily eyed rising prices. The supply-demand balance east of Suez was also tightened by plant closures in Iran and Malaysia, as well as restrictions on Indonesian shipments prior to the elections on 14 February.

But a return of urea supply east of Suez, a slowdown in buying and weaker gas prices pressured urea levels through the second half of February and into March across most markets, apart from the US, resulting in prices to weaken on the month.

For phosphates, DAP/MAP prices remained high on tight supply through the first quarter, while China refrained from exporting product. Also strong demand in Australia and the US diverted cargoes away from other markets.

Limited MAP supply and emerging demand encouraged suppliers to raise their offers in March in the west. Meanwhile, in the east, the imminent reopening of China is adding to expected supply, and has turned DAP markets bearish.

Traders have started to short Chinese DAP with India's RCF awarding its latest buy tender at $575/t cfr — $20/t lower than the last reported cfr sale into India. But for now, prices remain far above the breakeven price of around $509/t cfr, given the reduced Indian DAP subsidy of 21,676 rupees/t for the April-September kharif season.

Crop prices under pressure

High fertilizer prices so far in the quarter coincided with a decline in grain prices for wheat, corn and soybeans owing to expectations of higher global supplies in the coming season. This has led to the crop price index — the key element of the affordability index — falling to its lowest point since the fourth quarter of 2020.

Global wheat output is forecast to reach 799mn t in the 2024-25 season (July-June), according to the International Grains Council (IGC), up by 10mn t from the IGC's 2023-24 projection, but consumption is expected to be flat on the previous season.

Global corn production is also expected to rise in 2024-25, up by 6mn t on the year to 1.233bn t in 2024-25. And global corn consumption is forecast to increase, up by 18mn t to 1.23bn t in 2024-25. Carryover corn stocks for major exporters are set to increase by 7mn t on the year to 78mn t, according to the IGC.

As for soybeans, the IGC forecasts global production to rise by 23mn t to 413mn t in 2024-25 because of larger acreages and improved yields. Global consumption is projected to rise by 21mn t on the year to 404mn t, according to the IGC. The council also expects higher carryover stocks at 75mn t in 2024-25, up by 9mn t on the year.

By Lili Minton, Harry Minihan and Tom Hampson

Global Fertilizer Affordability Index (points)