Rabobank Vitor Pistoia

Short-term volatility, but input prices set to be contained for season ahead

International fertiliser prices are poised to decrease or remain stable for the coming months.  However, there will be “ups and downs” along the track said Rabobank farm inputs analyst Vitor Pistoia.

“There is a long way to go before the end of the current Australian cropping season, but the boundaries for the next one are already taking shape, and they look to be much more favourable when it comes to farm input prices,” Mr Pistoia said.

“The last weeks of July showed just how volatile the global fertiliser market is.

The heatwaves in North Africa and especially Europe caused a spike in demand for natural gas due to increased use of air conditioning, sharply increasing the price of the energy feedstock,” he said. “The price of gas surged 30 per cent only to decline now by more than two thirds from this peak.

“But not without pushing urea and other nitrogenous (nitrogen-containing) fertilisers on the way.”

Mr Pistoia said it is important to note that each tonne of urea requires around 0.57 tonne of ammonia to produce, which in turn demands 0.86 cubic meters of natural gas on an energy content basis. “So, a substantial price movement for natural gas will directly affect nitrogenous fertilisers, and DAP and MAP as well to some extent. And this did happen.”

The Rabobank analyst said the majority of the urea exporters’ references (driven by the countries that set the price for fertiliser) rose between 20 to 30 per cent in the last weeks of July and, as a result, the downhill trend which had been seen in DAP prices stopped.

“Added to this,” Mr Pistoia said “there are some international tenders for urea causing mixed sentiment in the market,”. “The biggest – which may finalise by the end of August – is expected to be at the one million tonnes mark. To give perspective, this represents roughly two per cent of the annual global trade for urea. Clearly, this will become a baseline for the deals following it during the months of September and October.

“The apparent bull market for farm inputs, however, is not forecast to be a trend. There are plenty of downsides along the line.”

Mr Pistoia said “First, and more broadly, we have the soft commodity (grain and oilseeds) indicators which are quite volatile after the Black Sea grain corridor deal was not renewed, adding doubts to farmers’ decision-making when it comes to fertiliser use. Some regions like southern Western Australia are benefiting from rising grain and oilseed prices, but this is not the general situation for the Australian winter. And the window to change fertiliser programs is short.”

“Then there are some major food-producing countries, and therefore farm inputs consumers, facing bad weather and its consequences. Namely, parts of Europe, the United States and Canada as well as drought-and-inflation-scorched Argentina,” he said.

“A third factor likely to keep downward pressure on farm input prices, especially for containerised goods such as agrochemicals and machinery parts, is the price of international container freight, which is now back down to pre-Covid levels,” Mr Pistoia said.

“So, despite reduced production since early 2023 – and all the positive demand signals from still-strong soft commodity prices – farm input supply is still greater than demand, both for fertilisers and agrochemicals.

“Hopefully – and assuming no other ‘Black Swan’ event happens – Australian farmers will be able take advantage of these lower prices while there is plenty of supply until later in the year.”

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