Commodity cycles amid complex geopolitical tensions

The global fertiliser market is navigating a downward phase of its commodity cycle, closely following the recent decline in critical crops such as corn, wheat, soybeans, and palm oil prices. Fertiliser demand, derived demand, is influenced by crop prices and existing stock levels. Since peaking in 2022, crop prices have dropped considerably: corn by approximately 36 per cent, wheat and soybeans by around 21 per cent, and palm oil by about 13 per cent as of 2024. These declines signal reduced farmer revenues and dampened incentive to increase fertiliser usage, especially in light of ample stock levels for fertilisers and agricultural staples. This alignment suggests that the fertiliser market may be nearing a price trough, typical of cyclical downturns in commodity markets.

In addition to lower crop prices, rising stock-to-use ratios of essential crops underscore this trend. Corn's stock-to-use ratio climbed from 9.2 per cent in 2022 to 14.7 per cent in 2024, reflecting more excellent supply relative to consumption, and soybeans showed the ratio decreasing slightly from 6.1 per cent to 5.9 per cent. Both of which exert downward pressure on fertiliser prices. Analysts predict that as the market approaches this cyclical low, there may be limited short-term price recovery until crop prices rise or stock levels diminish, thus tightening the supply-demand balance in the fertiliser sector.

In 2024, fertiliser prices, including critical metrics like the Argus standard MOP index, have entered a distinct downward trend, dropping by approximately 73 per cent from the 2022 peak. This sharp decline marks a crucial stage in the economic cycle as the fertiliser market moves toward a potential price bottom.

Geopolitical factors have their share when it comes to commodity price cycles. Geopolitical tensions profoundly impact global trade dynamics, particularly in fertiliser. The Russia-Ukraine conflict and the subsequent sanctions imposed on Russian and Belarusian companies exporting fertilisers have significantly restricted the market, pushing many companies to find alternative trade routes and methods to sidestep export bans. These sanctions disrupt primary fertiliser supplies and strain already vulnerable agricultural markets. The geopolitical instability has led to price surges, as companies face higher costs while adjusting their supply chains to compensate for limited Russian and Belarusian exports, further amplifying costs for agricultural producers worldwide.

Meanwhile, recent escalations in the Middle East, particularly the conflict in Gaza, are compounding these issues, straining crucial trade routes such as the Red Sea and the Bab al-Mandab Strait. Disruptions in these channels affect fertiliser shipments and broader supply chains, creating unpredictable delays and increasing transportation costs. With global fertiliser prices already sensitive to supply limitations, interruptions in these maritime routes have added volatility and uncertainty to the market. The convergence of these conflicts has intensified inflationary pressures across agricultural inputs, affecting both pricing and availability. As these tensions persist, global trade faces a period of heightened complexity, emphasising the urgent need for supply chain adaptability in the fertiliser industry.

maen.n@arabpotash.com