Is Europe really so vulnerable to nitrogen shortages and price spikes, as Yara suggests?
It is easy to see what the fertilizer producer is getting at, given that more than half the region’s own output capacity is mothballed, thanks to eye-watering costs of natural gas, a key raw material.
Europe has been particularly vulnerable to buoyant energy markets, given its reliance for natural gas on Russia, which is suffering, um, frequent setbacks in supplying a region backing Kyiv in the Ukraine war.
Deliveries vs needs
However, it also acknowledges that European farmers have been relatively forward thinking in ensuring their 2022-23 fertilizer supplies.
They “have sought to secure part of their fertilizer needs for the spring application during third quarter,” Yara said, reporting a 6% drop in European nitrogen deliveries for the July-to-September period.
That compares with a 28% drop in deliveries in Africa and Asia, and a 35% slump in Americas volumes.
And it comes too when it makes sense for farmers to scrimp a bit on nitrogen anyway, with the relative prices of fertilizer and grains implying a lower yield sweet spot, in financial terms, than they would normally aim for.
The optimal application rate is probably “10%, 12%” below last year’s levels, according to Dag Tore Mo, the Yara head of market intelligence.
Net that against a 6% drop in nitrogen needs, and Europe’s farmers are actually better off in terms of nitrogen security than they were a year ago.
‘Never seen before’
There is a relatively decent chance too of imports to plug any gap.
The shortfall in Europe’s deliveries has centred on urea, a widely-traded nitrogen type which is relatively easy to source on the international market – even maybe from the US, which thanks to its shale gas revolution is not so much at Russia’s whim, and where nitrogen prices are dipping.
Urea prices in New Orleans are, at $615 per tonne, down some $100 per tonne from their early-September high.
The US proved a “net exporter of nitrogen in both July and August, which I’ve never seen before”, Mr Tore Mo said.
Depending on how strong North America’s own market proves, exports could prove buoyant again.