"The global potash supply situation remains tense"
The war in Ukraine and the sanctions imposed on Belarus are having a significant impact on the global availability of potash fertilizers. This situation and the expectation of significantly lower cereal exports in the future through Ukraine and Russia could jeopardize global food security. We talked to the Head of the customer segment Agriculture/Sales International of K+S, Dr. Josef Wiebel, about the current situation and the further outlook.
Dr. Wiebel, what is your assessment of the current situation on the global potash market and the impact of the war in Ukraine?
Wiebel: Since the end of 2020, we have seen a continuous increase in potash demand, driven by attractive agricultural commodity prices, for example for corn, wheat, soybeans, rapeseed, and palm oil. Accordingly, potash prices have also risen significantly. The war in Ukraine interfered with this situation, which has already become tense in terms of demand. As a result of the sanctions against Belarus and Russia, potash supplies are becoming significantly tighter. Consequently, potash prices are continuing to rise.
Is the supply of potash fertilizers to German and European farmers guaranteed, even against the background of the sanctions against Belaruskali and the probable loss of quantities from Russian potash fertilizer producers? Is K+S capable of compensating for the lack of supply?
Wiebel: We see opposing developments here: On the one hand, a lower supply due to the discontinuation of deliveries from Russia and Belarus. On the other hand, a decline in demand from farmers for granulated potash, due to the high potash prices, but also due to input prices that have risen sharply overall, for example, for fertilizers in general, diesel and plant protection agents. Liquidity issues and risk trade-offs play an important role here. Moreover, many producers of complex nutrients in Europe have reduced or discontinued their production due to the exorbitantly high gas prices and consequently have no or significantly lower demand for potash as a commodity. Overall, we therefore do not see any supply deficits in Europe at present.
Overall, we therefore do not see any supply deficits in Europe at present.
What is the situation in Brazil, an important potash importing country, in this respect?
Wiebel: European agriculture is still based on family farms. In contrast, agriculture in Brazil is essentially industrial. Large farms, often organized as corporations, dominate the picture. They usually have excellent access to risk hedging instruments, which means they can sell their crops forward or insure them. For this reason, we have hardly noticed any decline in demand in Brazil, despite high fertilizer prices. Nevertheless, Brazil is also particularly threatened by the loss of potash producers from Belarus and Russia. In 2021, Brazil obtained 46 percent or 5.8 million tonnes of its potash imports from these two countries. That is why we currently see the highest potash prices in Brazil.
How has the price increase since the start of the Ukraine war affected demand for potash fertilizers?
Wiebel: Overall, all market participants are very unsettled. Very roughly, we can say that there is hardly any decline in demand in industrialized agricultural economies, such as Brazil, the USA, Australia as well as the palm oil plantations in Indonesia and Malaysia. We are currently seeing a moderate decline in developed countries dominated by family farms, including Europe, Japan, and Korea. Potash demand is currently declining sharply only in economically weak countries with small-scale agriculture, for example in large parts of Africa and Asia, and in some cases also in Central and South America. We see a rather selective decline, as described earlier, among producers of complex nutrients (NPK), particularly in Europe, due to high gas prices.
What impact will it have on a German or European farmer if the prices for the required fertilizers have risen sharply? Will farmers change the way they apply fertilizer or cultivate crops?
Wiebel: Due to the high prices of agricultural commodities, fertilization is generally worthwhile even with currently high fertilizer prices. Nevertheless, some farmers will reduce their fertilizer intensity to save costs and minimize their financial risk. For potash, we will see declines in wheat and other cereals that are not very demanding on potash supply and on sites that are very well supplied with potash. In contrast, we do not expect any adjustments for more demanding crops such as rapeseed and corn. The range of crops grown will also not change. Crop rotations will remain the same. And major changes would already fail due to the availability of sufficient seed.
What impact will the very likely significantly lower export volumes of agricultural products from Ukraine and Russia have on the global supply situation in the future?
Wiebel: Historically, global inventories of agricultural commodities were already at a relatively low level before the Ukraine war. Due to the threat of supply shortfalls, particularly for wheat, corn, and sunflowers, further price increases in agricultural commodities can be expected, which will in turn be reflected in higher food prices. This will hit poorer countries dependent on food imports, such as North and East African countries, particularly hard. I fear the threat of unrest, hunger, and subsequently increased migration.
What is your assessment of further developments on the potash market over the next few months?
Wiebel: We will hopefully soon see an end to the war in Ukraine. The political and economic consequences, however, will probably continue to affect us for a long time. The global supply situation for potash is therefore likely to remain tense.
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