The Overview
Things pulling in opposite directions is maybe an inelegant title for this issue’s Overview, but it’s not a bad way to summarize the current state of the agriculture markets relevant to New AG International.
Let’s begin with the European Union and the Sustainable Use Regulation (SUR). It’s gone.
That’s not our words, thatwas the description by the International Biocontrol Manufacturers Association (IBMA) in a February statement.
As a result of sustained farmer protests across various member states, Ursula von der Leyen, EU President of the European Commission, proposed to withdraw the SUR, noting it was a symbolof polarization.
There is now a scramble among lobbyist groups to be part of the Strategic Dialogue on the Futureof Agriculture.
Among the many reasons for the farmer protests were the Autonomous Trade Measures (ATMs) granted by the EU to Ukrainian product that was now entering EU markets. The result: domestic farmers are less competitive, and to rub salt into the wound they are being told not to grow crops on some of their land.
And this is where the world of agriculture collides with geopolitics.
To misquote the English novelist Jane Austen – it is a truth universally acknowledged that the ag markets are linked to geopolitical factors (as well as weather).
And there is a traffic-jam of factors – namely, the ongoing Russian invasion of Ukraine, the Red Sea shipping crisis, the instability from the Israel -Gaza war, and legacy inflation from the global pandemic.
Given this, one might have thought fertilizer prices would be moving up. But they are moving in the opposite direction – urea prices are currently at $365/t fob level (for Arab Gulf), this is level with 10 years ago. Urea prices have fallen in the intervening years, climbing into the $800s per tonne and even higher in the shock of the Ukraine invasion March 2022.
European gas prices are now where they were before the Russian invasion. Oil is around $80 dollars a barrel – hardly crisis territory.
This has even been noticed in the wider commodity market, wherebig price swings are now beingbet against.
The name given to commodity price swings is macro volatility, and it is currently lower as equities push higher and more money floods into the exchange traded funds.
According to Archie Hunter and co-writers from Bloomberg, metals such as zinc and aluminium spiked on supply losses when the energy crisis first kicked in 2022 (the first year of Ukraine invasion), but now industrial demand is lower. Another example is copper, which surged on predicted renewable demand and then retraced its steps, hovering above its 2018 level according to Trading Economics.
Some big economies have flirted with recession. The Eurozone narrowly escaped in Q4 2023, scrapping by with 0.1 percent y/y GDP growth.
The energy crisis in Europe has taken plenty of casualties in vertical farming, which is the focus of this issue of New AG International.
New AG International asked Henry Gordon-Smith, an expert in the economics of vertical farming (VF), if there were reasons to be optimistic, or do more companies need to go under to set the industry on a profitable path. Gordon-Smith argues that the fundamentals to invest in VF are still there (see UAE regional report), but owners need to put the product and market placement first, and then the technology. Too many projects, he told New AG, put the technology first, and then the business plan. Again, things pushing in opposite directions.
This diametric is reflected in policies, which can be exemplified rather crudely in an agricultural context by the following: reduce fertilizer usage but grow more food. This could open the door to many biological products, but the environmental policies (such as putting a percentage of land aside) are one reason why the European farmers are using their tractors to block motorways.
This sense of a diametric is also apparent when looking at recent fertilizer capacity additions.
In Laos, the potash producer Lao Kaiyuan announced this month (March) that it was expanding its one million t/year mine. The third unit is due on-stream in 2025 and will take its production capacity to two million t/year. There are big markets for potash in Southeast Asia – with palm oil production being a large consumer. In 2023, China concluded its annual potash contract with Canpotex at USD 307/t cfr down from 590/t cfr the year before. A case of things pulling downwards.
Salitre Brazil
In Brazil, that gargantuan ag market, the one million t/y phosphate complex at Salitre that Russian fertilizer producer EuroChem acquired from Yara in 2021, is now on-stream. It was another March announcement. Brazil is a big biofertilizer market – a global leader – but this shows it still needs its triple and single super phosphate. “Import substitution” someone might shout from the back. But it is still product that is required, not replaced.
And in Brazil there was a recent item covered by New AG International on a green ammonia project in Uberaba, Minas Gerais state. This 500,000 t/y plant is aiming to produce ammonium nitrate using green ammonia – that’s the variety of ammonia that comes from splitting water with electrolysis using renewable energy, usually a combination of wind and solar.
Uberaba is slated for a 2028 start-up with a $1bn price tag – the project backers will hope the macro-volatility remains calm over the next few years to make sure that the cost of the project doesn’t escalate. Otherwise, Uberaba’s AN will compete with low-cost Russian ammonium nitrate.
Russian fertilizer exports were not put on the new sanctions list in February agreed by the U.S., UK and EU. The U.S.’s imports of Russian fertilizer increased during January-July 2023. One report says Germany experienced an increase too in 2023, but then again high gas prices had shut down some of Germany’s ammonia production. Things pulling in different directions.
There could well be more pushback in the upcoming EU parliament elections in June this year. TheSUR is gone. Could the Green Deal be next? ●
Luke Hutson, New AG InternationalChief Analyst
