Strong global demand coupled with supply chain disruptions have caused uncertainty and instability in many industries and have deeply affected businesses, governments and individuals across the globe. The agriculture industry has been affected in several ways, one of which is the recent increase in input costs, including fertilizer prices, and this naturally causes frustration among agricultural retailers and farmers.
At The Mosaic Company, our mission is to help the world produce the food they need. We are doing everything possible to provide stable prices and a reliable supply of essential fertilizers to American farmers. In fact, we supply about 50% of the applied P fertilizer in the United States. We recognize that the costs of fertilizers have increased dramatically in recent months, and we feel responsible for sharing our global perspective on this complex issue.
Fertilizers are globally traded commodities just like corn, soybeans and wheat, and therefore their prices are influenced by many factors related to global supply and demand. Fertilizer prices are not determined by individual companies. Several factors have contributed to the price increase:
Fertilizer demand follows commodity prices
The demand for fertilizer has increased as farmers try to earn additional income from high crop prices, leading to an increase in both the area planted and the use of fertilizer. The trade outlook for U.S. commodity exports remains strong for 2022, as it was in 2021, and with higher grain prices driving higher demand for fertilizer, lower fertilizer costs higher follow historically.
The cost of producing fertilizers has increased
Due to the increase in raw material prices, the production of phosphate fertilizers is more expensive today than in the past. For example, the cost of ammonia has increased by 288% year over year and the cost of sulfur by 165%. In addition, the entire supply chain has been deeply affected by the drastic increase in import and land transport costs.
Trade and supply disruptions continue to reshape the market
Other countries have announced restrictions on fertilizer exports to ensure their own domestic supply. For example, China, which accounts for over 25% of global phosphate exports, recently banned all exports of phosphate fertilizers until June 2022, dramatically decreasing global supply and increasing pressure on global prices, including including those from the United States.
In addition, weather events and natural disasters have resulted in plant closures which have increased costs. In August, Hurricane Ida devastated the Gulf Coast, damaging the electricity grid, causing a delay in the production of nitrogen and phosphate. This unfortunately resulted in weeks of lost production.
In June 2021, the US International Trade Commission imposed a countervailing duty on imports of Moroccan and Russian phosphate fertilizers due to unfair foreign subsidies. Regardless of this, imports of phosphates are entering the United States at record levels and from a more diverse supply base. In fact, US phosphate imports increased by 1.3 million metric tonnes in 2021, 57% more than in the same period from January to November 2020. This has resulted in a larger market. balanced and fairer, which creates a more competitive environment with trusted and reliable suppliers for American farmers and American agriculture in the long run.
In any given year, 90% of global fertilizer consumption occurs outside the United States, as other countries around the world continue to increase their grain production to meet growing demand. Phosphate prices in the United States are currently $ 20 to $ 100 per tonne lower than other major agricultural markets such as Brazil, India and Europe. Claims that countervailing duties drive up US prices are simply not true.
Mosaic is committed to American farmers, and following this year’s global events, we have adjusted our typical trade volumes and deliberately diverted tonnes of fertilizer from the international market to increase availability nationally.
We understand the pressures ag retailers and farmers face during this tumultuous time and the frustration that accompanies it. We value our long-standing relationships with our retail partners and their farmer customers, and will continue to provide transparency and support as they face the tough decisions ahead.