Brazil is taking the opportunity to buy up cheaper fertiliser from Russia, just as European and US sanctions have hit exports from the Bloc.

The world’s fourth biggest food producer has not imposed any sanctions on Russian product and only has to overcome logistical challenges to secure supply of cheaper fertiliser.

Despite Russia being shunned by much of the Western world after its invasion of Ukraine, it is exporting similar volumes of nitrogen and compound fertiliser as before the war. However, sales to Europe have all but stopped because of sanctions but sales to Brazil, India and Africa have continued. Meanwhile, the US is still importing a small volume of product, too.

Buyers of Russian product face challenges with shipping as some freight companies are prevented from transporting Russian material, whilst other companies have self-sanctioned away from the Russian market. This pushed shipping costs from Russia to Brazil to nearly $100/t (£86/t), which is double the price last year.

Brazilian buyers are currently paying between $640/t to $660/t CFR (£490/t to £544/t) for urea which is €120/t(£104) less than Europe. Russian urea is typically at the bottom of the range, priced around $20-$30/t (£17 to £26) below other origins.

Jennifer Willis-Jones, senior nitrogen markets editor at CRU – a global commodity market analyst company – said: “One thing to make clear is that there is no shortage of supply of product globally. Big fertiliser producing countries are producing similar amounts to last year.

"But volatility in the urea market is here to stay for the short and medium term. The supply chain has been disrupted due to different nations’ reaction to the war in Ukraine and as a result prices have risen in the open market.”

Closer to home, in the UK and Europe, the picture is a bit more mixed with the closure of the Cheshire CF Ince plant as well as a stop-start approach to manufacture on the continent. More nitrates and ammonia plants have temporarily shut down where hikes in the gas price have squeezed profitability too far forcing companies to mothball.

After historical high fertiliser prices in February and March, prices cooled into mid-May before picking up over the least two weeks. Ms Willis-Jones added: “The market has been reacting to psychological worry, rather than a huge disruption to supply and demand.”

“In May, there was less global trade then expected as people waited for the market to cool before committing. The most significant event in the market was India’s RCF buying 1.645m tonnes of urea on May 11, which largely came from the Middle East.

“Buyers were resistant to get into a market after the spring volatility so the pace of transactions slowed down. A lot of buyers were covered in the immediate term, so were waiting to see what happened.”

As a result of reduced market activity, prices drifted down after India’s RCF purchase at $716.50/t CFR for West Coast India and at $721.30/t CFR East Coast India. But then when the gas price spiked again on 17 June, the big buyers of fertiliser globally felt that the market was not going to fall anymore so came back into the game and bought up supply. This resulted in prices strengthening through June.

At the end of June, traders were securing product from Egypt and Algeria for sales in Europe. Manufacturers in these countries have access to cheap gas so are likely to be in line to make significant profits at current prices.

As we head into July, the global market now looks similar to the situation at the beginning of May before the softening of prices. Demand will be heating up this month as India floats another tender and Brazil has to come back into the market to purchase more in July and August.

Despite a healthy supply of Russian fertiliser, the country is anecdotally still one month behind with orders it would usually hold. Due to not imposing sanctions, Brazil has the ability to take product from Venezuela and Iran as well as Russia. However, some buyers in Brazil won't deal in sanctioned product as they are exposed to the US or the EU market where restrictions apply.

Going into September, the US and Europe will come into the market to purchase again. Which means that that the global fertiliser market will likely be supported until the end of the year. A high natural gas price and strong grain fundamentals are likely to keep a strong floor on the price.

Looking across the globe to China, one of the biggest exporters of urea has brought in an export license scheme in an attempt to slow exports. When prices rose at the end of 2020, product was being sucked out of China, attracted by higher international prices.

But government officials were worried that this would leave domestic supply short so slapped licenses on to restrict exports. As a result, a reduced volume was exported from China and this is unlikely to change for the rest of the year.

Nigeria’s two big manufacturers, Indorama and Dangote, are continuing to produce significant volumes of urea. New entrant, Dangote, is currently exporting around 100,000 t/month of urea but has plans to double exports from September, which is likely to end up in west Africa, the US and Latin America.

Brunei Fertilizer Industries also ramped up production, which is likely to be heading to South-east Asia, Latin America and Australia.