Agriculture Market Forecast: Top Trends That Will Affect Potash and Phosphate in 2023

According to CRU, phosphate exports out of China topped 10.7 million MT in 2021, but contracted to 5.4 million MT in 2022. The consultancy expects some rebound in 2023, when shipments should tally 6.7 million MT. Annually, China is the top producer of phosphate, with output of 85 million MT in 2021. Russia ranks fourth, producing 14 million MT the same year.

By the end of June, phosphate prices had slipped back to the US$789 level.

The hidden costs of high fertilizer prices

Even though phosphate prices ended 2022 below their starting value, the true cost of the record-setting rise is yet to be felt.

The International Fertilizer Association estimates that 85 percent of the world’s soils are deficient in nitrogen, while 73 percent are deficient in phosphorus (phosphates) and 55 percent are deficient in potassium (potash).

These deficiencies make fertilizers essential to crop growth. But to counter broad-based increases in overhead costs, many farmers are opting to limit the amount of fertilizer they purchase and use. This is expected to impact soil health and crop yields.

“The fertilizer supply/price crisis is in many respects more concerning than direct food inflation because it could inhibit food production in the rest of the world that could eventually help take up the slack from stalled Russian and Ukrainian grain deliveries,” Maximo Torero, chief economist for the UN Food and Agriculture Organization, told Reuters.

He explained that this will have a knock-on effect that will ultimately drive up the cost of food. “High fertilizer prices could have farmers worldwide reducing planned harvests and the amount of land they are planting — with the risk of depressed yields in the 2022/23 crop season — adding to the shortage of imported grains and putting food security at even greater risk,” Torero said.

As the global food system slips into precarious territory, demand for wheat is expected to hit a fresh high in 2023.

“Recent increases in global wheat demand for food use have been fuelled mainly by growing populations and shifts in diets and incomes,” Economist Intelligence Unit members said. “Ongoing population growth across parts of Africa and Asia will underpin further expansion in 2022/23, where we forecast that food use will reach a record 546m tonnes.”

Higher potash prices causing demand destruction

While phosphate moved lower during H2, potash remained elevated off of continued supply concerns. Fears that supply will be further depleted by Russia’s invasion of Ukraine heightened the impact of 2021 sanctions targeting Belarusian potash exports.

“The (Russian) trade sanctions have specified 'carve-outs' for the food and fertilizer sectors to avoid adverse effects on global food security,” a World Bank blog post reads. “These carve-outs have enabled Russia to continue exporting fertilizers. However, potash exports from Belarus have fallen by more than 50 percent due to the restriction on using EU territory for transit purposes.”

Picking up some of that slack is Canada, where the nation’s potash producers have started to ramp up output.

“Canada’s largest producers, Nutrien (TSX:NTR,NYSE:NTR) and Mosaic (NYSE:MOS), maintain plans to reactivate capacity the companies had previously idled, at least partly in response to the supply disruption in Russia and Belarus,” said Knight.

However, as Knight went on to explain, 10 months of persistently high prices have led to potash demand destruction.

“Mosaic recorded only a modest year-on-year increase in potash sales in the first nine months of 2022, and Nutrien saw potash sales decline over the period,” he said. “Despite the supply disruption, demand has been weak, and the Canadian producers have consequently not been able to take advantage of the supply gap.”