The last few years have accustomed the Ukrainian fertilizer market to relative price stability. Therefore, even in November 2020, many refused to urgently purchase fertilizers in favor of seasonal. But at the end of 2020, farmers were surprised to see a sharp rise in fertilizer prices. In 3 months, basic fertilizers have risen in price by more than 40%.

The increase in the cost of fertilizers was observed not only in Ukraine. Below are two graphs comparing the unit cost of the active substance of mineral fertilizers on the world market. As of March 16, 2021, price growth was observed in all segments of nitrogen and phosphate fertilizers. For some products, you can see a periodic decline in the dynamics, but the basic upward trend in prices has been maintained for 13 consecutive weeks.

The dynamics of growth were so sharp and at first glance not motivated by objective factors that some even began to remember 2008. Then, within a few months, world indices soared several times. And then just as quickly collapsed.

If the situations are similar, then you can expect similar results. For part of the agrarian community, this is an opportunity to earn extra speculative growth. For other farmers, on the contrary, it is a chance to wait for prices to fall to previous values, or perhaps even lower. However, we must warn ourselves against a simplistic perception of the situation based on the analogies of the past.

Are the situations really similar?

It should be noted at once that the volume of supply on the world fertilizer market in late 2020-early 2021 has not changed significantly. There were technological difficulties at several enterprises in different regions, but they did not have a significant impact on the market. The main factor that disturbed the balance of the world market was the increased demand for fertilizers. As of March 16, 21, this demand remained high, and shipment queues ranged from a few weeks to several months. This is an objective situation that will have an impact at least until the end of April.

The main factor that provoked the rise in prices in 2008 and in 2021 - financial speculation. Excess money that found itself in the commodity market began to flow consistently between its various components. Actions to contain COVID-19 have slowed the global economy. At the same time, measures to support the population and business have led to the formation of a multibillion-dollar unsecured financial bubble. According to Joseph Biden alone, almost $ 2 trillion will be allocated to support the economy and fight COVID-19.

At the same time, part of the commodity positions in which speculative funds were invested has a very real growth base. In particular, agricultural products are based on the reduction of inventories against the background of growing demand in major markets.

Any imbalance in the supply of agricultural products can lead to another price increase. And financial speculators have acted as a catalyst here rather than the cause of the process.

The situation with large volumes of corn purchases by China is indicative. The task of restoring the pig population, which has decreased as a result of ASF, requires a strong feed base. In 2021, this problem is solved through imports. But in the long run it will have consequences that go beyond the period 2020-2021.

If we consider the cost of fertilizers and agricultural products in retrospect (for example, urea, corn and wheat), we can draw a clear conclusion about the interdependence of the dynamics of prices for fertilizers and agricultural products. However, this effect is not directly correlated. Each of the markets has its own driving forces. The speculative peak of 2008 coincides in dynamics in each of the three products. At the same time, the growth of indicators in 2011-2013 was more restrained by the fertilizer market. At that time, the material base of fertilizer production allowed to quickly repay the peak demand.

Paying due attention to the speculative factor, it must be acknowledged that the current price dynamics in the market of mineral fertilizers is more reminiscent not of the rapid growth of 2008, but of the recovery of the price level after a long period of decline. We have seen similar phenomena before. The average recovery period lasted from 12 to 25 weeks. As of March 16, the growth of prices for the nitrogen and phosphorus groups continued. They have already crossed the three-year high and are close to the average price marker for 10 years.

Can we expect stabilization of world prices for basic fertilizers in April-May? Most likely - yes. But at what level this stabilization will be difficult to predict. It is just as difficult to predict how the massive infusion of unsecured money will affect the world economy. But a quick return to the price realities of 2020 now seems unlikely. There are a number of unrelated factors involved.

Will inflation of major world currencies mean the formation of new realities, including in the fertilizer market? Financial speculators, anticipating a period of instability, act in the same way as ordinary people. Buy liquid tangible assets. People will not stop needing food. And the earth needs food.

Serhiy Ruban, Chairman of the World of Agrochemistry and Agrotechnologies Association

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