As the new year begins, The Scottish Farmer spoke to CRU Group on what farmers should look out for in the year to come. In 2022 lobal events caused the fertiliser market unprecedented rises and volatility but this year could see more predictable patterns and greater stability.

What have government's done to help?

The big news is the EU has lifted all import duties for nitrogen fertiliser coming into the trade bloc from all nation apart from Belarus and Russia. This decision follows months of debate in Brussels between the rising cost of food production balanced against strict green-house-gas emissions and water quality targets.

Relaxing tariffs was first discussed in the European Parliament on May 17 when food price rises were at their more viscous. So far the UK Government says they are 'listening to the industry' before making any decision, but no strong statements were forthcoming.

The sharp rise in gas prices pushed the price on nitrogen through the roof with the market peaking at over £1000/t in 2023. This resulted in many European nitrate manufacturers shutting down operations as they could no longer compete with imported compound produced with local natural gas.

This affected the CF plants here in the UK and also in other large players such as Lithuania’s nitrogen fertiliser manufacturer, Achema, which has suspending production again in December after a stop/start year for the factory.

Who will the duty drop encourage onto the market?

The volatile market has encouraged many farmers switched to imported urea which predominantly comes from Egypt and Algeria in North Africa, which already enjoy zero rate tariffs into the EU. But as more producers gain free market access, namely the Middle East and Nigeria, increased supply will put a downward pressure on EU urea prices. Compared to nitrates, the price of urea has been undervalued through much of 2021 and it doesn’t suit all farming systems, but increasing numbers of growers are adapting to the product.

Jennifer Willis-Jones, urea analyst from the CRU Group, said: “We have seen a rise in urea imports and it will be interesting to see if farmers switch back to nitrates from urea this year or they stick with it.

"Urea is not a bargain by any stretch but it is a cheaper product. The greater free market access for more fertiliser producers to the EU will drive competition and should cause prices to dip. This news wont be well received will be in Algeria and Egypt.”

Europe has been a premium payer for fertiliser throughout 2022 with farmers often paying $200/t more than global prices. However, Ms Willis-Jones predicted the gap may shrink as more countries gain free access. Even with a tariff of 5.5% to 6.5% product from Saudi Arabia and South-East Asia still came onto the European market

A flood of foreign fertiliser doesn’t spell the end for domestic production according to the CRU expert. She believes that European producers' abilities to tailor production closely to what the EU market needs and quicker supply chains, means that there is still a place for local plants.

She was confident that CF Fertilisers would continue to produce ammonium nitrate at Billingham, on Teeside, with the global company reporting strong trading in 2022.

How is global demand shaping up?

The next big event in the world fertiliser market is when the next Indian urea tender is announced. The country of 1.4bn people issues tenders for millions of tonnes of N, P and K which affects the global market. The central purchasing model means Indian authorities spend tens of billions of dollars which results in their farmers paying a fraction of the price for fertiliser compared to growers in other nations like neighbouring Pakistan.

But reports from India state that they are looking to drop their spend by up to 25% next year which will either reduce prices paid or volume bought. It could knock $150/t off India’s DAP nutrient-based subsidy, limiting support for higher global prices, CRU phosphate analyst, Tom McIvor noted.

It may choose to cut even more spend on phosphate and potash and continue to maintain spend on urea. But, the timing of Indian urea purchases is difficult to predict as the Indian bureaucracy could call it tomorrow, or within a month and this would fire the starting gun on the global fertiliser trade for Q1 in 2023.

While Indian and European buyers for spring crop could harden the market in the first quarter, new suppliers from Saudi Arabia, Qatar, Bahrain, UAE and Nigeria could pull prices the other direction. Even Iranian product could end up in Europe via traders however most of this is currently shipped to Brazil and Turkey.

How is Brazil affecting the market?

Reports from Brazil showed it had bought strongly and had plenty of urea from Venezuela, Russia and Iran, which most other countries were reluctant to buy. Nigerian producers had deals to send product to Brazil, but the plentiful supply in the South American country could see fertiliser switched to head north to Europe.

However, farmers need to watch the natural gas price. If it starts to spike, then nitrogen prices should follow.

The story of the last six months has been falling prices with imported DAP prices into Europe dropping from as high as $1300/t FCA in April, to $820/t FCA in December, according to CRU.

Many countries, such as Brazil, overbought in the start of the year so didn’t re-enter the market with big purchases, plus they were also hoovering up product from western sanctioned Russia. As a result, Brazil picked up fertiliser at $300/t less than was being paid in Europe. The tragic floods in Pakistan also pushed down demand shown with a resulting drop of 80% in normal consumption during Q3.

What will happen to the two biggest phosphate exporters, Morocco and China?

China is still holding back on exporting phosphates with Q1 of 2023, officially sitting an export quota of zero.

Until its self-imposed export ban, China was the world's biggest phosphates exporter, shipping 10m tonnes in 2021, or about 30% of total world trade. Top buyers were India, Pakistan and Bangladesh, according to Chinese customs data.

However, once plantings are finished in China, the government will come under increasing pressure to allow product onto the global market, or else face crashing production rates.

Morocco, which is the world's largest producer of phosphate and contains about 75% of the world's estimated reserves, is also limiting exports to maintain high prices. However, if prices slide, they may need to increase production to maintain national income, which can account for 5% of national GDP.

The state-owned OCP group could put an additional 5m tonnes of granular phosphates availability onto the market in 2023, though at this point there are no signs of increasing rates. Plant maintenance in Q1 could even cut supply at the start of the year.

Can a lid be kept on the price of potash?

The potash market is defined by the major contracts for purchase issued by China and India which set the market for the rest of the world.

Last year, these were bought at $590/t, which was well down on the global average for the year and had a downward effect on the market. Russian supply is continuing to get onto the world market, which is keeping a lid on prices with sanctions only affecting Belarus, which is running at 20% capacity. Global potash prices crashed in 2022 and the Chinese and Indian contracts are now expected to drop below $450/t CFR.

Will Russia continue to be a big winner in the fertiliser market?

Russia has done very well in 2022’s fertiliser market after switching some sales from Europe to Latin America and India, while securing near-record prices.

There is little sign of this stopping into 2023. In fact, Russia imposed a 23.5% fertiliser export tax on the price of any sales over $450/t FOB from January 1, likely bringing in hundreds of millions of US dollars extra to the Russian government from any fertiliser trade in 2023.