The weight of fertilizers in production costs continues to rise and already accounts for 35% to 40% of a crop
10/03/2022
Although negotiations have been slow in the Brazilian fertilizer market since the Russian invasion in Ukraine and many uncertainties are still on the radar, one thing is for sure: the price increase has made nutrients more expensive – they had already been rising sharply last year –, will raise the cost of agricultural production in the country, will help put more pressure on inflation and may affect crop yields, although the areas planted with crops such as grains and sugarcane are not expected to decrease.
In a scenario of “prices oscillating at every phone call,” according to one buyer, tension grew this week after a new package of sanctions on Russia was released on Tuesday by the U.S. and the European Union, and which involved everything from a reduction to a ban on the consumption of Russian natural gas. The move brought more turbulence to the nitrogen fertilizer segment, which has natural gas as a raw material. Brazil’s dependence on international suppliers exceeds 96% in nitrogen and potash fertilizers.
With moves related to natural gas, and amid so much disconnected information, the atmosphere is of restlessness. But private-sector agents and market specialists stresses that the crisis does not put the 2022/23 harvest at stake. Mosaic Fertilizer CEO Corrine Ricards told Valor recently that many Brazilian farmers moved up purchases in February. “I saw a good movement of early purchases. With this, farmers are able to guarantee stocks.”
The biggest problem, sources agree, is still potash, since two of the three largest global suppliers, Russia and Belarus, are entangled in the disorder — but not to the point of jeopardizing the sowing of crops. There will be an effect on costs, however. Fertilizers account for 30% of the cost of grain producers, according to consulting firm StoneX. With last year’s increases, the percentage is already around 35% to 40%. This way, the less capitalized may choose to reduce the use of fertilizer on crops, even if the shortage does not deepen.
With the recent sanctions on Russian gas, the behavior of urea prices has been like that of a prancing horse, compared Marcelo Mello, head of fertilizers at StoneX. In less than two weeks, since February 24 — when Russia invaded Ukraine — the macronutrient has risen 50%. On March 8, it was close to the historical ceiling of $900 per tonne, points out the consultancy. This level has been reached before on two occasions: at the end of last year and, before that, in 2008. According to the analyst, strong movements (the high of 50%, as well as the low of more than 40% seen in January), are rare oscillations for the product.
Brazil imports annually between 8 million and 11 million tonnes of urea alone, a volume that is almost the entire consumption. The local production does not reach 2 million tonnes. Unigel, which leased two factories from Petrobras in 2020, has a capacity for 1.15 million tonnes a year — equivalent to a third of the urea production in Latin America, according to the company itself.
Mr. Mello also says that he perceives a resumption of business in the fertilizer market happening “little by little” this week. At this moment, despite the high prices, the nitrogen segment is more active than the potash and phosphate segments, he said.
In potash, the restriction is greater due to the clear picture of shortage that is building up. Russia and Belarus deliver about 24 million tonnes to the world, and Canada, among the three key players in the segment, does not cover this absence — not even adding the new projects, which will not offer minerals overnight.
StoneX points each tonne of potash at $803 and a constrained market. A source familiar with the industry says that some deals have been closed at $1,000 — and prices are expected to increase. “There is not much supply [of potash] and [Brazilian] farmers are aware that there will be a shortage and want to buy,” the executive said.
Last week, the companies that operate in Brazil, among them the three largest – Mosaic, Yara and Fertipar – held back reference price lists from the domestic market. But “a good part” of the companies released lists again. The industry informed last week through its association, Anda, that there is stock for three months, not counting ships on the way.
Meanwhile, in Congress, the rural caucus wants to approve a new general law for environmental licensing in Senate still in the first half of this year. According to the them, with the changes, the intention is to speed up licenses to exploit mineral deposits in the country, which would contribute to the advancement of the National Fertilizer Plan, to be launched by the federal government on Friday.
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Sergio Souza — Foto: Billy Boss/Câmara dos Deputados
Deputy Sérgio Souza (Brazilian Democratic Movement, MDB, of Paraná), who chairs the Parliamentary Agricultural Front (FPA), said that Senate President Rodrigo Pacheco (Social Democratic Party, PSD, of Minas Gerais), vowed to put the proposal to a vote by the middle of the year. On Wednesday, in a press conference, Mr. Pacheco argued that Brazil must take care of the potential potassium reserves, but “without attacking forests and indigenous areas.” The senator said that the licensing project will go through the commissions and will be taken to the plenary after this stage, following an agreement with leaders in Congress.
“We are not going to make anything more flexible, but to give agility. Either you release it or you don’t. Either the deposit is explored or we will have expensive food, and the Brazilian and the world will pay for it,” Mr. Souza told Valor on Tuesday.
(Rafael Walendorff contributed to this story.)
Source: Valor International