Influence of the Ukrainian crisis on global agriculture

| Foreign Markets |

Few people take the idea of “the butterfly effect” seriously, but it is not uncommon for geopolitical events in one place on Earth to influence situation in distant countries.

A challenge for South Africa

The Republic of South Africa is an important importer of maize and wheat, while Ukraine is the fourth and sixth largest exporter of those goods in the world respectively. A large proportion of Ukrainian maize and wheat is shipped to no other country than South Africa. Those two commodities stand for 80% of all imports from Ukraine to South Africa. What is more, 80% of cereals imported to this country is harvested in Ukraine. If the Crimean conflict escalates, the government in Pretoria might face difficulty with securing maize provisions as early as in April 2014.

How long will gas supply last?

Consequences of the situation in Ukraine are the most likely to be felt in Europe. At the moment, the Crimea is being annexed by the Russian Federation, while the European Union and the USA have been introducing “soft” sanctions towards the Russians responsible for escalating the conflict. However, it is still uncertain what the trade relations between Kiev and Moscow will look like in the future. We need to consider the importation of Russian natural gas, and the fact that almost 30% of gas used in Europe comes from the East. What is more, half of its quantity is sent via the Ukrainian territory. At the moment, Kiev is falling behind with payments for gas and the political and military moves of Moscow remain unknown. It is therefore difficult to foresee what the situation of the fertilizers market in the coming months is going to look like. Diversification of natural gas supply remains the only alternative, protecting the European chemical sector from interrupted delivieries of Russian gas. The only choice is to support the mechanisms leading to the implementation of energy security policy in Poland and the whole European Union.

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Ukraine to buy more fertilizers

| Foreign Markets |

The Ukrainian Ministry of Agricultural Policy and Food has announced that 661,000 tonnes of nitrogen-based fertilizers have been put in stock before the spring season of work on the farms. The quantity exceeds 60% of the annual market demand, which means that fertilizers market will grow by 10% in comparison with 2013.

Available does not mean affordable

Despite the provision of a considerable supply of nitrogen-based fertilizers, the product remains far from cheap. Domestic manufacturers sell a ton of the product for c. 3.300 UAH, but the retail price soars to 3400 – 3800 UAH, which is far too much for many farmers to afford.

Support for the farmers

This is why the Ukrainian government is planning to take measures to control the prices of the most popular nitrogen-based fertilizers. This task could be delegated to local authorities. Another solution under consideration is direct distribution of fertilizers by the state Agricultural Fund to the farms.

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Demand for fertilizers in Ukraine

| Foreign Markets |

The Ukrainian Ministry of Agricultural Policy and Food is expecting the farmers in the country to use c. 1.07 million tonnes of artificial fertilizers in the spring sowing season. The demand for nitrogen-based fertilizers is forecast to grow by 13% as compared to 2013 and reach 754,000 t. Also, 178,000 t. of phosphorous-based and 134,000 t. of potassium-based fertilizers are to be used.

Keeping the prices at bay

In November 2013, there were 817,000 tonnes of fertilizers in stock. At the end of December, the average price of nitrogen-based fertilizers neared 3,000 UAH/t, but was 15% higher at retailer outlets. The farmers’ associations made an appeal to the government to intervene, so as to stop the prices from rising.

Problems with stock?

The beginning of work on the farms is near, but difficulties with purchasing fertilizers have started already. The Ministry is recommending a review of natural gas prices for the chemical companies, which could help decrease fertilizer prices.

Support for producers and farmers

In order to stabilize fertilizer pricing, The Ministry of Agricultural Policy and Food has suggested that prices be frozen each quarter, with some adjustments possible. The government has also proposed providing electricity and basic resources to chemical companies on preferential terms. Such measures could foster the competitive edge of the Ukrainian fertilizer market.

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Fertilizers market in 2014. What will New Year bring?

| Foreign Markets |

According to IFA (International Fertilizers Association) forecast, the global demand in 2013/2014 season will reach 179.5 million tonnes. In 2012/2013 season, fertilizers consumption stood at c. 176 million tonnes of total NPK ingredients. What is especially interesting, though, is IFA forecast for 2014/2015. In this season, the global consumption of NPK ingredients is expected to reach 184.3 million tonnes!

Phosphorous market in 2014

The end of 2013 provides a good opportunity to take a look at the factors which are to shape the global fertilizers trade in 2014. To a large extent, the phosphorous fertilizers market shall depend on demand in India, where DAP (diammonium phosphate) market is likely to revive. Specialists also point at the reassuring long-term weather forecast concerning monsoons in this part of Asia. DAP inventory is estimated to reach 1.5-1.7 million tonnes in April 2014, while in April 2013 the stock was nearing 4 million tonnes. Seeing that consumption in 2014/2015 is to be 9 million tonnes, while the local production is only 3.5 million tonnes, imports ought to reach 5 million tonnes.

Fertilizers market in 2014. What will New Year bring?/fot. photopin.comThe situation on potassium fertilizers market

When it comes to potassium, the key ingredient shaping prices will be the changes caused by the break up of BPC, a trading company which joined the potentials of Russian and Belorussian manufacturers of those fertilizers. One of the results of BPC dissolution is the visible fall of the market share of those producers on the global potassium market, with the gap being filled by American companies. Another factor influencing the future situation is the fact that those two manufacturers (Belaruskali from Belarus and Uralkali from Russia) are going to aim at regaining their position. Considerable market surplus of potassium is therefore observed. This will have grave consequences for PotashCorp, an American corporation, which prepares a restructuring plan and massive lay-offs of 1000 staff. The move to reduce cost by the American giant will surely increase price pressure in 2014.

Fertilizers market in 2014. What will New Year bring?/fot. photopin.comConsumption of nitrogen fertilizers in 2014

Nitrogen fertilizers market will be determined by Chinese policy on the export duty on urea, with the highest rate of 15% plus CNY 40/t, and the lowest at CNY 40/t (c. 6,5 USD/t) in July – October.

Urea exportation from China was 7 million tonnes in 2012, while in the first ten months of 2013 exports have reached 6.5 million tonnes. Assuming that urea price in China is c. CNY 1600/t and taking into consideration plus 15% and CNY 40 as the total of export duty, FOB price in China may reach USD 340/t in 2014, while today it is USD 325/t.

Urea trade is also linked to demand in India. National Fertilizers Department has suggested that India will return to the global urea market in March 2014. Demand is unlikely to be high, however, as the stock in India is still considerable. American imports are likely to follow the same trend.

Cheaper gas in Ukraine

The last important factor in 2013, influencing the situation in 2014, is the change of the price of gas sold to Ukraine. The decrease by 30% will prompt the fertilizer installations in Ukraine to reopen production. There is little probability, though, that the quantity of fertilizers meant for export will rise suddenly.

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The future of fertilizers market

| Foreign Markets |

The key to success in the fertilizers business is vigilant monitoring of local and global market trends. We have recently heard some information from various parts of the world that are bound to have a major influence on the prices of fertilizes in 2013/2014 season.

On the one hand, news from the Far East will certainly shape the situation in the business. It has been announced that exports of urea manufactured in China reached 7.2 million tonnes in the period from July 2012 to February 2013. In the previous “export window”, this figure reached only 3 million tonnes. This factor ought to be taken into consideration, especially that the next export window will be closed this summer. Another important element of the pricing situation is the lowering of Chinese exports duties, which will fall to 2% as of June 1st 2013. This rate will be in place until November 1st 2013, when the duties will rise to 77%.

The second key factor is the news about increasing output capacities in Algeria, Egypt and Russia. Those markets function in close proximity to EU, which means that developments in such countries always have an impact on the open European market.

The future of fertilizers market/fot. photopin.comCurrent situation in Ukraine is the third issue worth looking into. Wheat harvest is expected to reach a record high in 2013. US Department of Agriculture forecasts the Ukrainian wheat crops to reach 22.6 million tonnes, which is considerably more than 15.8 million tonnes in 2012. The harvest might be the highest in 20 years! What is more, there were no major losses after winter season, and the acreage of sowing increased by 20%. Undoubtedly, this will fuel growth of wheat exports. UkrAgroConsult, a company specializing in analysis of the Ukrainian market, forecasts a harvest of 20.23 million tonnes, whereas ProAgro – 19.89 million tonnes.

Consequently, we should also look into the sweetcorn production capacity in Ukraine. The Ukrainian manufacturers of corn have recently invested in premium imported seeds, which are a hybrid quality. Such positive news from our Easter neighbor will surely help Ukraine’s position on the international agricultural market, especially when it comes to the exportation of sweetcorn.

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