Sergey Feofilov: Rising gas and fertilizer prices increase risks for the 2022 crop in Ukraine

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Ukraine’s farming sector annually consumes 2.1-2.2 MMT of ammonium nitrate and a bit less than 1 MMT of urea ammonia liquor. Three major fertilizer producers operate in the country, but one of them has stopped. Signs of these products’ shortage in the Ukrainian market are already seen, but now it is extremely hard to say how acute this shortage will be.

Natural gas prices are on the rise and this cannot but affect those of fertilizers, since natural gas accounts for 60 to 80% of their production cost.

Now is the time when growers usually begin purchasing inputs for spring planting. Ammonium nitrate cost UAH 8,000/MT in January 2021 and as much as UAH 24,000-25,000 in late October, while its price was UAH 18,000-20,000 back in the middle of the month. The price increase is rather noticeable.

It seems that the market is in panic. And, in our opinion, the present level of fertilizer prices is heavily contributed to by speculative sentiment, therefore we admit the possibility of a price adjustment.

Large agricultural producers obviously have some stockpiles. According to our information, farmers have somewhat slowed fertilizer purchases now. The buyers are waiting for more clarity in this market and, quite possible, a decline in demand some time later will also lead to a price adjustment.

We believe the surge in natural gas and fertilizer prices will fully affect the cost of agricultural products to be produced not until the 2022-23 season. Of course, some speculative sentiment in the grain and food market cannot be ruled out in this regard – it can and will be present.

 

UkrAgroConsult

Tags: Ukraine, price, EU, Sergey Feofilov, risks, crop