Global grain yields at risk on nitrogen crunch: CF

The prevailing squeeze in nitrogen fertilizer availability is expected to dent global grains production in the upcoming crop cycle at a time when corn and soybean stocks are already at multi-year lows, US nitrogen producer CF Industries said.

Nitrogen production across the US and Europe has been hobbled since the third quarter by prolonged turnarounds, Hurricane Ida-related downtime and record-high natural gas costs. Meanwhile, major producing countries China and Russia implemented restrictions on fertilizer exports — fueling multi-year highs for nitrogen fertilizer prices and restricting availability to major agricultural regions, such as Brazil and India.

The feedstock-driven production outages in Europe pushed regional buyers to the import market, fostering increased competition with India and Brazil for limited offshore fertilizer supplies.

With fertilizer demand anticipated to outstrip global supplies well into 2022, global grains production likely will suffer, said Bert Frost, CF Industries senior vice president of sales, market development and supply chain.

"These factors suggest the potential for strong fertilizer demand to last beyond 2023 even as some regions are unable to secure enough product in this supply constrained environment, resulting in lower yields," Frost said during the company's third quarter earnings call. "If this were to happen, demand would be deferred into future years as it would take more than two growing seasons to replenish global grain and oilseed stocks."

For major agriculture hubs that rely heavily on offshore imports, such as Europe and Brazil, the best available margin will dictate where nitrogen fertilizer exports are directed, Frost said.

The Russian government this week outlined export caps on nitrogen-based fertilizers, as well as DAP, MAP and complex fertilizers, effective 1 December-31 May. Russian urea, AN and UAN exports amounted to 6.43mn metric tonnes in December 2020 to May, according to trade data. The 5.9mn t cap equates to a reduction of about 90,000 t/month across the three listed products, leaving Brazilian and European farmers vying for limited product to fertilize crops.

"Somebody is going to have to struggle or pay up," Frost said.

Reduced fertilizer availability also comes at a time Black Sea and European producers are planting crops for the 2022-23 marketing season and could particularly weigh on wheat output next year after an already tight supply this year. Combined wheat production in the top eight exporters could total 398.1mn t next year under a reduced fertilizer use scenario, compared with a baseline projection of 409.4mn t, under Argus' analytics arm Agritel estimates. This could prompt farmers to plant crops that are less fertilizer-intensive, including sunflower and rapeseed.

In the US, CF expects US fall ammonia demand to be the strongest since 2012, driving expectations for another large corn crop. Frost said existing forward nitrogen demand for first quarter and second quarter delivery further supports expectations for a large US crop in 2022, which CF estimates at around 93mn acres. Sufficient volumes will meet farmer needs in the spring "not only from CF, but from the broader industry group," Frost said.

"Imports are up. Domestic production will recover. And yes, we will have a spring," he said.

By Connor Hyde and Bilal Muftuoglu