Forward sales (or lack thereof) of phosphate fertilisers have played out like a game of Russian Roulette for fertiliser companies but there could still be a bullet in the chamber for buyers, writes Jim Mole*.
The extraordinary price hikes brought on by the Ukrainian and the dramatic impact to supply-side inputs such as gas and potash – not to mention flow on effects to shipping costs and availability, saw fertiliser prices reach stratospheric heights in 2022.
These unprecedented market gyrations have put importing suppliers in a difficult position, forcing them to buy in at record-high market prices to have stocks on hand to meet orders – and then wait nervously as the market retreated.
Understandably, farmers and fertiliser retailers have been reluctant to commit to purchasing product as prices climbed, but there could be a sting in the tail for those sitting and waiting for prices to bottom out.
As a result, the major players are sitting on large stocks that are devaluing every day and in some cases are now selling fertiliser for about cost or less. Importers will be reluctant to buy more stock at high buy prices, in a falling local market where customers aren’t committed to that initial stock.
However, at some point farmers and fertiliser resellers have to pull the trigger. Even at higher prices the most expensive fertiliser is the one that you don’t put under the crop.
Depending on global market pricing and the value of the Aussie dollar, the first half of winter crop phosphate demand will normally be bought by retailers anytime between October and January. We’re now in February and as an industry we don’t have that first 50% sold yet. That hasn’t happened in my ten years in the industry.
Fertilisers – even at the higher prices – have proven to return more than they cost and there is still good money to be made from fertiliser, but first you have to buy it. That’s especially the case at the recent spot price of around US$700 a tonne for phosphates (down from US$1,300).
All indications are that with current seasonal conditions, crops are going to be very valuable again in 2023. And it’s not a world fertiliser shortage that’s the problem (most of Australia’s fertiliser stocks come out of the Middle East or Asia, not Europe), it’s a shortage of buyers.
But if farmers and dealers won’t commit soon, there may be a local shortage as suppliers will run out of stock. In the absence of willing buyers, some fertiliser companies may simply choose not to gamble on that last one or two 30,000-tonne shiploads each and run the risk of losing more money in a falling market.
The end result is the ag sector could end up 150-200,000 tonnes short of the planting fertilisers needed because farmers haven’t committed. That means potentially very profitable crops that won’t have fertiliser under them.
So, those farmers still betting on prices continuing to come down now face a real risk that the product may not be there when they want it.
Some opportunistic sourcing of product associated with recent small shipments, may have muddied the water a little when it comes to spot prices and the relative cost of stock on hand. Although local prices may still come back some more, supply – not price – is the biggest issue that dealers and farmers now have to consider, if they don’t want to miss out on this season’s starter fertiliser requirements.
Urea fertiliser is not as critical an issue as there is still time to source supplies to use as a side-dressing later in the season, but it still takes time to source and ship it, so some forward-ordering will still be needed to secure the supplies needed throughout the growing season.
My advice to farmers – as it was going into the global price hikes – is to forward commit to about a third of their expected phosphate needs early on; then to buy the next third when the market gets going; and then roll the dice on the final third as soon as they know their requirements for the season, so that they’ll have the product they need.
That way they’ll average the price paid whichever way the market goes, a natural hedge if you like, while not missing out on potential yield by being caught short of product.
*Jim Mole is the CEO of Ameropa Australia. Ameropa Australia are experts in fertiliser and nutrient management operating as three separate businesses: Ameropa for trade sales, Impact Fertilisers for the wholesale business, and Browns Fertilisers for retail activities. Mr Mole has worked with Ameropa Australia since early 2013 with a wealth of local and overseas business knowledge and is backed a strong leadership team of industry professionals. Contact: jmole@ameropa.com.au
