Fertilizers at their most affordable since July 2018

Fertilizer prices in March were more affordable for farmers than they have been since July 2018, according to the Argus fertilizer affordability index.

Fertilizers became gradually less affordable from July last year until October, after which most prices began to flatten or fall. Falling fertilizer prices since October as well as robust crop prices in 2018 have encouraged farmers to plant more grains for this year, boosting fertilizer demand.

The index — which calculates the ratio of fertilizer price to major crop prices — indicates that fertilizers have become more affordable this year (see graph).

Fertilizer prices

Prices for urea have trended down for the past six months, and bottomed out in March, but have stabilised or increased slightly since then. Deferred buying from February and early-March helped stabilise prices, but the most important driver was an increase in US prices in March.

In phosphates, the market has been weak globally as a result of supply outweighing demand. Potash price momentum stalled in the fourth quarter of 2018, with lower demand in key buying regions dampening the price outlook. Weather-related problems and lower crop prices in southeast Asia, especially for crude palm oil, have prevented MOP prices rising.

Agriculture

The major crop reporting agencies — including the UN Food and Agriculture Organisation (FAO), the US Department of Agriculture (USDA) and intergovernmental body the International Grains Council (IGC) — forecast an increase in grains production for the 2019-20 season.

The expectation of higher output has led to a fall in crop prices, which hit multi-month lows in March.

A larger corn planting area is expected in the US — the world's largest producer — and this is likely to increase nitrogen consumption this year. The US corn planting area will rise by 3mn acres (1.21mn hectares) this year, according to the USDA, as the trade war between the US and China leads to a drop in the soybean area.

A similar situation is expected for wheat in Europe, where a larger planted area is expected to lead to higher fertilizer demand. The European Commission's first forecast for the 2019-20 season pushes regional output higher on the year, with production of soft wheat up by 9.5pc to 141mn t, compared with the drought-affected 2018-19 crop of 129mn t.

The Argus global fertilizer affordability index is calculated using the ratio between the fertilizer and crop price index, with the base year set at January 2004. The overall index is adjusted by the crop cycle average. An affordability index above 1 indicates that fertilizers are more affordable compared with the base year, while below 1 indicates lower affordability.

The fertilizer index includes international prices for urea, DAP and potash, adjusted by global usage. Argus' agriculture index includes all major grain prices — wheat, maize, soybeans and rice, and averages by crop tonnage.

Argus Fertilizer Affordability Index