Russia is holding back supply, Europe is heading into winter, and gas prices have increased tenfold compared to last year.
Thomas Elder Markets analyst Andrew Whitelaw said it was "a pretty scary situation".
"Gas and energy prices have gone absolutely bonkers and fertiliser plants are now saying 'we cannot sell fertiliser based on the input cost of this gas'," Mr Whitelaw said.
"So they're starting to shutdown plants in Europe, which reduces a lot of supply from the global market and that is making [fertiliser] prices increase dramatically."
CRU Group head of fertilisers, Chris Lawson, said the situation was unlikely to change soon.
"The cost of producing nitrogen fertilisers, mainly ammonia, has skyrocketed in the last few months," he said.
"Given the current situation with Russia and its approach to supplying Europe with gas, it seems unlikely they're going to fall sharply soon."
He said the United States and nations in the Middle East and northern Africa were looking to ramp up their own fertiliser production, which would alleviate some of the shortfall.
"But we don't think it's going to be quite enough," he said.
Mr Lawson said European governments were quickly finding out how important fertilisers were to food security and "to economies ticking over" and was expecting a lot of lobbying in the coming weeks for governments to support fertiliser manufacturers.
What it means for farmers
Information from the Australia Bureau of Agricultural and Research Economics and Sciences (ABARES) shows urea imports to Australia had not slowed in the past 12 months despite costing about three times more than average.
"This indicates that fertiliser supplies will be sufficient over the 2022–23 season, although higher costs will erode farm margins," it said.
Mr Whitelaw said Australian farmers were facing higher fertiliser prices and sliding grain prices.
"We've had high fertiliser prices since July last year and that's now likely to extend further down the horizon," he said.
"That's a major concern when you've got grain prices that have slid considerably since the middle of May.
"Farmers will do their calculations and if it's too expensive, it's too expensive."
ABARES is forecasting Australian Premium Wheat (APW) will average $520 a tonne in 2022-23, which Mr Whitelaw and others have described as optimistic.
