Keith Nunes 2019

KANSAS CITY — Russia’s invasion of Ukraine is upending global markets. The prices of wheat and crude oil already have surged as the conflict has intensified, and other commodities may experience similar volatility that may lead to a realignment of global supply chains. One example is fertilizer.

News on March 4 that the Russian government recommended fertilizer producers temporarily halt exports underscored the sensitivity of the situation. Russia and Belarus account for 40% of global potash exports, and Russia accounts for about 22% of global exports of ammonia, 14% of global exports of urea, and 14% of global exports of monoammonium phosphate (MAP), which is used in soybean production, according to Rabobank.

“Because of Russia’s large fertilizer production and its role as a global fertilizer supplier, the removal of Russian product from the global marketplace will have an impact on supply,” according to The Fertilizer Institute, Alexandria, Va. “Despite the benefits afforded by a robust US-based fertilizer industry, prices for our products are driven by global supply and demand factors.”

The all-but-certain market shock comes on the heels of a challenging year for fertilizer production in the United States and already high prices. Several factors combined to limit supplies and inflate prices of nitrogen, the primary fertilizer applied to crops such as corn and wheat, as well as other key fertilizers, including phosphorus and potassium (potash).

Fertilizer production in the region responsible for 60% of US ammonia (nitrogen) output was disrupted last winter by arctic weather across the South and in late summer by Hurricane Ida. Prices of natural gas, an input that accounts for about 80% of the variable cost of nitrogen fertilizer, have skyrocketed. Key producing countries have curbed production and exports. Soaring freight costs and logistics snarls have added to the disruption in the fertilizer industry.

Samuel Taylor, farm inputs analyst for Rabobank, said in a March 1 call with journalists about the impact of the Russian invasion of Ukraine on food and agriculture markets that finding alternative sources for some of these products isn’t simple, because several, such as ammonia, have a rigid, specialized structure for delivery.

“Ammonia is transported from pipeline in Russia to the Black Sea,” he said. “That has been shut off. That is a market where we see a greater risk of volatility, albeit from a very high price base at the moment.”

Some countries have a higher dependency on inputs from the Russian/Belarussian market, Mr. Taylor said, including Brazil.

“Brazil has a nutrient-hungry soil and not as strong domestic production platform on fertilizers,” Mr. Taylor said. About 46% of its potash, 27% of its urea and 30% of its MAP comes from the region.

“When we look about for a need for supply chain realignment, we have to look at Brazil as a country in great need,” Mr. Taylor said.

The interconnectedness of the global supply chain and markets were tested throughout the global pandemic. Now the war in Ukraine is set to further pressure numerous aspects of global food production. The length of the Russian siege and the sanctions imposed as punishment have the potential to realign global supply chains for the foreseeable future.