How Agribusinesses Can Cope With a Global Fertilizer Shortage

In the face of COVID-19, supply-chain disruptions, geopolitics and the shocks caused by Russia’s invasion of Ukraine, fertilizer is in short supply.

The conflict in Ukraine has been a major factor, as that area of the world accounts for 28% of global fertilizer exports.¹ In addition, the cost of natural gas, a key ingredient in certain types of fertilizer, has spiked. As a result of these events and others, the price of fertilizer has skyrocketed across the board,² with prices spiking as much as 400% or more.¹

However, agribusinesses are no strangers to risk in various forms as well as the need to manage it. Shortages of fertilizer and the related price volatility are just the latest. The question is how they can handle this unlikely and unexpected risk.

What’s causing the fertilizer shortage and higher prices?

Although the conflict in Ukraine and the consequent reduction in fertilizer exports from Ukraine, Russia and Belarus have been a major factor in global fertilizer shortages, other critical events are shaping the market. These factors include China’s decision to limit its own fertilizer exports, a sharp rise in the price of natural gas and weather conditions.

Even before the disruptions created by Russia’s invasion of Ukraine, China, the world’s largest exporter of nitrogen and phosphate fertilizers, had curtailed its exports, leading to global shortages and price spikes. Skyrocketing prices of coal and other commodities also contributed to fertilizer price increases.

How to handle fertilizer shortages

With less fertilizer available at higher prices, crop yields are likely to suffer. With so much uncertainty and fertilizer-importing countries fighting over sources of this much-needed agricultural feedstock, agribusinesses can take some of the following steps to manage risk:

• Buy early: Agribusiness should try and secure stock months before it is needed. Because this is a seller’s market, buyers must make extra efforts to secure fertilizer well before growing season.
• Buy forward contracts: Forward contracts on fertilizer minimize risks related to cost volatility in fertilizer prices, as agribusinesses often do with futures for wheat, corn and other agricultural commodities.
• Buy federal crop insurance: With such heightened weather-related risks as well as geopolitical risk, it would be prudent to evaluate crop insurance to withstand the impact of a fertilizer shortage on future crop yields.
• Understand your risk tolerance: It’s incumbent on agribusiness owners and managers to understand how much risk they can tolerate and limit the amount of risk the business is exposed to. Ideally, 80% or more of an agribusiness’s production can be protected through a combination of the above actions.
• Work with your broker, who has the expertise to guide you to the tools and risk mitigation strategies that can help an agribusiness survive and even thrive in the most challenging conditions.

Contact a HUB agribusiness expert for more information on mitigating risks related to fertilizer availability and uncertain pricing.

¹ CNBC, “The other reason why food prices are rising,” August 14, 2022.
² Bloomberg, “Fertilizer Prices Drop 30% Following Demand Destruction,” May 26, 2022.