Farmers are, from a financial perspective, justified in cutting fertilizer use thanks to soaring prices, nitrogen giant Yara International acknowledged, as it revealed an 11.0% tumble in its deliveries.
In general, “higher grain prices improve farmers’ profitability and demand incentives for agricultural inputs,” Yara said, highlighting a more than doubling, to $450 a tonne, in wheat prices over the past two years.
However, it acknowledged that costs of many fertilizers had soared even faster, with the price of nitrogen-based CAN (calcium ammonium nitrate), at $900 a tonne, more than four times its 2020 price of $190 a tonne.
“Although higher grain and oilseed prices provide stronger economic incentives for farmers, higher fertilizer prices have shifted optimum application rates somewhat lower,” Yara said.
It calculated at “about 10% lower” the “optimal application rate of fertilizers” – at 192 kilogrammes per hectare, down from 221 kilogrammes two years ago.
‘Deliveries were slow’
The admission suggests weakened potential for grain yields, at a time when Yara stressed “its concern for global food security”, which had been exacerbated by the Ukraine war.
Yara’s calculations, based on results of its own trials, cited a winter wheat yield of 9.46 tonnes per hectare, down from 9.62 tonnes in 2020.
The Norwegian-based group reported growers indeed cutting back on nutrient use, with its deliveries in the January-to-March quarter down by 752,000 tonnes to 6.79m tonnes, two-year low.
In Europe, deliveries plunged by 24% to 2.23m tonnes.
“Deliveries were slow in first quarter and are likely to end behind last year for the season as a whole,” Yara said.
Gas prices soar
Rising prices ensured Yara reported rising profits for the quarter, despite the drop in volumes, and a jump in costs of its key raw material, gas, too.
Ebitda excluding one-off effects leaped by 130% to $1.34bn, on revenues up 88% at $5.91bn.
“Higher selling prices… more than offset increased feedstock costs, lower deliveries and increased fixed costs,” the group said.
Gas costs had risen particularly fast in Europe, which is trying to wean itself off Russian supplies. Yara, which temporarily shut many European ammonia and urea plants last month because of the dent to margins from gas costs, quoted spot prices up 378% year on year.
By contrast, in the US, with its rich supplies of shale gas, prices were only 19% higher.
Yara forecast its gas costs for the April-to-June and July-to-September quarters would be, respectively, $1.15bn and $750m higher than a year before.
Yara’s overall raw material, energy and freight costs were, at $4.42bn in the January-to-March period, double those a year before.
Nonetheless, despite the raised costs, the high prices of nitrogen fertilizers are encouraging investment in extra production capacity.
The group quoted research from Cru estimating at 14.1m tonnes the combined nitrogen capacity increase expected over 2021, 2022 and 2023, with India leading the expansion.
Three months ago, that figure was quoted at 11.9m tonnes.
“Industry consultant projections show increased global nitrogen capacity growth in 2022,” Yara said.
“However, the outlook indicates a continued tight market, driven by high grain prices, supply disruptions and low global inventories.”