Global fertilizer prices relatively stable during second quarter of 2024

The World Bank’s fertilizer price index remained relatively stable during the second quarter of 2024, following a 20 percent drop in the first quarter. The index is 24 percent lower than it was a year ago, primarily due to a significant decline in phosphate rock prices (-56 percent) and potassium prices (-17 percent). This broad weakness is attributed to improved production prospects driven, for the most part, by lower input costs. In the second quarter of 2024, the fertilizer affordability index (the ratio of fertilizer prices to food prices) reached its 2015-19 average level.

Compared to 2023, prices are expected to average lower in 2024 and 2025 but remain well above 2015-19 levels due to robust demand and some export restrictions (particularly from China) and sanctions (mainly Belarus). Upside risks to the forecast include potential increases in input costs, especially natural gas. However, a resumption of China’s exports and lower-than-expected crop prices could contribute to further declines in fertilizer prices.

Although fertilizer input costs have dropped significantly from their 2022-23 peaks, they remain higher than pre-2020 levels. Key inputs for fertilizer production, which saw substantial price declines from their 2022-23 records, have shown some stability in the past two quarters. For instance, natural gas prices in Europe rose by almost 15 percent in 2024Q2 (q/q) but are still 11 percent lower than a year ago. Natural gas is the most critical cost component for nitrogen-based fertilizers. Similarly, sulfur prices are around 26 percent lower than a year ago. However, over the past four quarters, the average prices of these three inputs have been more than 30 percent higher than their 2015-19 averages.

Fertilizer affordability has returned to its pre-2019 average. Lower fertilizer prices during the past few quarters have brought the fertilizer affordability index (the ratio of fertilizer prices to food prices) close to 2015-19 levels. During the fertilizer price spike of 2022, the affordability index nearly doubled compared to its long-term average.

According to the United States Department of Agriculture or USDA, because fertilizer is important for grain production, shortages and high prices affect the entire food supply chain. According to the 2022 Commodity Costs and Returns data from USDA’s Economic Research Service, fertilizer costs account for nearly 45 percent of operating expenses for U.S. wheat and corn farms compared with 23 percent for U.S. soybean farms. In response to high fertilizer prices, farmers may adjust their production practices.

Outlook:

Broad undertone is supportive for fertilizers sector given that agriculture remains a key priority area for the government. Finance Minister Nirmala Sitharaman during her budget 2024 speech said agriculture is one of the priority of the government. The government will undertake comprehensive review of agricultural research and focus on developing climate resilient varieties in agriculture. The fertilizer subsidy in Fiscal Year 2023-24 has exceeded Revised Estimates (RE) by over Rs 6,500 crore. In June 2023, the government had extended urea subsidy scheme up to March 31, 2025.