Fertiliser markets strengthen as supply concerns mount

Domestic fertiliser markets remain at the whim of global geopolitics, with traders forecasting a fairly bullish outlook for the coming months.

High energy prices in Europe and supply chain disruption across the Black Sea region and Middle East have caused global markets to remain volatile.

Lucy Hassall, fertiliser manager at Openfield, said: “Recent global events are once again creating volatile markets, with a drone strike on Russia’s major nitrogen production facility; and Israel, which is a major exporter of gas to Egypt, temporarily shutting down a major gas field, cutting supply and resulting in Egypt shutting down urea production.”

See also: Ag markets react sharply to conflict in Middle East

Tensions in the Middle East appear to have tempered in the short term, however analysts at Rabobank have warned that if the Strait of Hormuz were to close, the impact on the global fertiliser complex could be severe.

Samuel Taylor, senior analyst at Rabobank said: “Not only does 20% to 30% of global seaborne oil pass through these waters, they are arguably the most significant bottleneck for global urea trade.”

“The potential impacts could run much deeper, hitting global sulphur and phosphate prices and further testing the cost structure of growers globally.”

The EU recently introduced a 6.5% tariff on fertilisers imported from Russia and Belarus, along with duties of between €40/t (£34.50) and €45/t (£38.80).

These tariffs are forecast to rise to €430/t (£371) by 2028, according to the EU Commission.

Traders say this is likely to affect global trade flows and could lead to an even tighter supply situation in Europe.

Sterling has been trading close to a four-year high compared to the US dollar at £1 to $1.37, which is making fertiliser imports to the UK look comparatively cheaper.

However, a strong sterling will also affect farm businesses with UK exports less competitive on global markets.

Elevated fertiliser prices and tight cashflows on-farm could mean more orders are placed last minute for fertiliser next season, rather than in advance.

There are concerns among industry that this could lead to manufacturers scaling back production due to muted demand, which may result in a lack of available products for 2026, similar to this spring.

Clarity needed

An effective tax on imported fertiliser will be placed on products from 1 January 2027 through the Carbon Border Adjustment Mechanism (Cbam).

However, there is still significant uncertainty in the agricultural industry over how this tax will be calculated and the effect this will have on fertiliser prices.

A major variable is the carbon price, which is highly volatile and has risen by more than 50% this year alone, from roughly £35/t to £54/t in mid-June.

A second significant variable is the inclusion of a free allowance.

Assuming a free allowance of 80% is included, the cost of imported fertiliser is likely to go up marginally, but most farm businesses will be able to factor it in.

However, if the free allowance is set lower than 80% costs could start to rise dramatically, potentially by more than £100/t.

The Agricultural Industries Confederation (AIC) has also warned that with the Cbam rate being calculated quarterly, there may be further complications for pre-orders made for the following year, with farmers potentially facing a surcharge if prices increase.